The euro, long-run convergence and the impact of the crises

In this chapter, we analyse two different issues concerning economic performance and policies in Europe after the introduction of euro: the long-run real economic convergence (or divergence) across Eurozone countries and the impact of the mentioned crises. Regarding the first issue, we briefly review the relevant economic theories – with particular reference to “Optimal currency area” (OCA) theories; then we accomplish some empirical analyses to assess the extent of long-run economic convergence, the similarity of economic cycles and trade integration within the euro area. Our work partly integrates some recent research on ex-post assessments of developments in the EMU based on OCA’s and related theories. Our results show that the role of the EMU in favouring real convergence is disputable. Moreover, this union has proved to be fragile after the recent economic shocks: this is the second issue dealt with in the paper. In particular, the austerity measures undertaken to face the sovereign debt crisis, especially in the peripheral countries, have caused a prolonged recession, stagnation and persistent unemployment