Abstract

The Euro Area economy is recovering after the incidence of the Great Recession, with the leading indicators reaching the pre-crisis levels. This evolution was strongly supported by the New Economic Governance implemented over the past years. On the one hand, the unprecedented expansionary monetary policy of the European Central Bank determined the decline of the real financing costs to record low levels, contributing to the re-launch of the private investments and consumption. On the other hand, the governments adjusted the budget deficits, with positive impact for the investment climate. Last, but not least, several reforms have been implemented across Europe, with positive impact in terms of potential output. The purpose of this paper is to assess the dynamics of the real economic convergence within the Euro Zone during 1996-2017, with a focus on the post-crisis cycle (2013-2017). We employed traditional econometric methods (including the Cobb-Douglas production function) and annual / quarterly statistics from Eurostat database in order to assess the convergence of the structural and cyclical components of the GDP of the Euroland member countries. The main results show a significant increase of the real economic convergence over the past quarters. However, this convergence seems strongly dependent on the expansionary monetary policy, while several structural challenges lie ahead, including the regional polarization and the important differences in terms of implementing the Digital Revolution.

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Published on 12/12/17
Submitted on 31/10/17

Licence: CC BY-NC-SA license

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