National or Regional Convergence in the EMU?

National or Regional Convergence in the EMU?

As the tenth anniversary of EMU is approaching, a debate is getting momentum in both the economics profession and the European political bodies as to whether the Single Currency has promoted or hindered convergence among the countries of the Euro-zone. Particular emphasis is given to the examination of regional growth and regional convergence.

To explain the differences, a simple framework is employed to highlight how risk-sharing strategies in the presence of asymmetric shocks and labour immobility leads to capital stock migration within the EMU, and this is resulting to higher variability of GDP, but more convergence with respect to GNP measurements. Discrepancies among GDP and GNP indicate imbalances in the Current Account and, in fact, one of the most characteristic recent developments within EMU is the emergence of serious CA deficits in several countries, while other countries enjoy substantial surpluses.