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Some euro zone economic convergence may be resuming, ECB study shows
December 1, 2017 / 10:13 AM / in 13 days

Some euro zone economic convergence may be resuming, ECB study shows

FRANKFURT (Reuters) - Convergence between the euro zone’s richer and poorer economies appears to be resuming, but income gaps remain huge and the euro has not been a catalyst for reducing inequality, a study published by the European Central Bank showed on Friday.

Membership of the currency union was considered an economic booster, anchoring confidence and attracting investment to fuel growth that would let Mediterranean and central European countries catch up.

“It is striking, however, that little convergence has occurred among the early euro adopters, despite their differences in GDP per capita,” the paper, which does not necessarily represent the ECB’s opinion, said.

“In contrast to some initial expectations that the establishment of the euro would act as a catalyzer of faster real convergence, little convergence, if any, has taken place for the whole period 1999-2016.”

Italy recorded the worst relative performance, but even in Spain, the income gap has not declined. Early gains were reversed by the bloc’s debt crisis.

The study concluded that the euro on its own neither boosts nor hinders convergence, but in the case of southern Europe, it probably masked broader problems predating the common currency.

Low productivity growth, weak institutional governance, and a poor use of investment are more likely causes of divergence than the single currency’s rigidity, the study said.

Reform efforts and the bloc’s recent upswing may be halting this process, however, even if it was too early to conclude whether the changes are cyclical or more structural.

Ireland and Spain in particular may once again be closing the income gap, while many of the others are at least no longer falling behind.

The former communist nations are also doing relatively well. Lithuania, Estonia, Latvia, Slovakia and non-euro zone member Romania have achieved the largest degree of convergence, the study concluded.

Reporting by Balazs Koranyi, editing by Larry King

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