From convergence to divergence – the trouble with the Euro

For the World Bank, the EU has been a model for good economic policy until recently – because it has set an example in terms of convergence (the equalisation of living conditions). But that is no longer the case – is the Union falling apart?

This question was the subject of a conference at the CEPS think tank in Brussels. But disintegration was not on the agenda. Most of the speakers talked about divergence and “structural reforms” that are supposed to resolve the problem.

Only the former EU Social Commissioner Andor took the bull by the horns – and pointed out the unpleasant facts. Despite all convergence, he argued, living conditions in Europe have still not converged.

On the contrary, there are still huge differences in GDP, wages and technology. Bulgaria and Luxembourg are worlds apart, the low-wage sector is increasingly losing ground, even in Germany.

Added to this is the population shrinkage in Eastern Europe – due to ageing, but also due to the migration to the West (forced by Brussels and Berlin). What remains are the dissatisfied, the nationalists and populists…

However, the problem did not become really acute, as one might expect, with the eastward expansion in 2004, but with the global financial crisis from 2008 onwards. Since then, the gap between winners and losers has been widening all the time.

According to Andor, the worst gap can be found in the Eurozone, which apparently reacted to the crisis with wrong economic policies (austerity and social cuts). This is clear in comparison with non-euro countries, but also with the US.

Unemployment there has fallen much faster than in the euro crisis countries, and the non-euro countries have also performed better. “This raises the question of whether the euro really unites the EU,” Andor said. De facto, it has divided them!

And that should not change very quickly either. Germany in particular is not prepared to draw conclusions from these problems and reform the monetary union.

It is true that France has made far-reaching proposals – but mainly due to German resistance, they have come to nothing…

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