Has the introduction of a common currency(Euro) LED to the convergence of EU countries?

Abstract

Has the introduction of a common currency (EURO) led to the convergence of EU countries? A review in the EU context. In this paper I try to answer this question by analysing different papers provided by the literature, focusing on the Total Factor Productivity (TFP) as an important component explaining differences per capita income across countries and the local allocation of production factors. Relying on the theories of Optimum Currency Areas (OCA), I conclude that the introduction of a common currency in the EU context has not led to convergence of EU countries over time and that differences between rich and poor EU countries remain. But I observe some convergence “clubs” that have economic, historical and trade links before the introduction of a common currency. In this sense, I ask whether fiscal union could be an element of economic convergence in the European Monetary Union (EMU), and largely in EU context.