The Euro Area Ten Years after Its Creation: (Divergent) Competitiveness and the Optimum Currency Area Theory

  • João Rebelo Barbosa Universidade do Porto, Faculdade de Economia, Portugal
  • Rui Henrique Alves Universidade do Porto, Faculdade de Economia, CEF.UP and NIFIP, Portugal

Abstract

As the euro is on its second decade, the European sovereign debt crisis and the ever more evident disparities in competitiveness among member states are prompting many to question whether monetary union is bringing more benefits than costs. The optimum currency area (OCA) theory provides a framework with several criteria for such analysis. In such context, we start by a descriptive analysis of the first twelve euro countries under six criteria, leading to a mixed conclusion on whether the EMU is closer or farther to fulfil them. Then we assess the impact of five OCA criteria on countries’ relative competitiveness. Differences in the growth of unit labour costs, the dissimilarity of trade and the differences in output growth were found to be the most significant. This way, we identify some causes of the divergent competitiveness between some EMU countries that contributed to weaker economic growth in some of them.


Key words: Optimum currency area, Euro area, Economic and Monetary Union (EMU), Competitiveness.
JEL: E42, E63, F15, F33, F41.

How to Cite
Barbosa J.R., & Alves R.H. (2011). The Euro Area Ten Years after Its Creation: (Divergent) Competitiveness and the Optimum Currency Area Theory. Panoeconomicus, 58(5), 605-629. doi:10.2298/PAN1105605R