The paper reveals mainly the experiences gained in the real convergence and the catch-up processes and their future prospects. As for the nominal convergence, only those factors were analysed which affect the real convergence directly. The analysis focuses highly on the sustainability of the convergence processes.
The possible trends of the longer term growth and convergence processes are presented based on a qualitative analysis representing the supply side approach. The analysis is aimed at revealing potential – not insignificant – risks and threats.
An ‘overshooting’ of the real exchange rate may hinder the achievement of fast and sustainable nominal convergence. In the coming years painful macroeconomic corrections could be required due to increasing deficit.
The simultaneous sustainability of the nominal and real convergence is of great importance.
The fulfilment of the nominal convergence criteria per se is not enough to ensure a robust long term economic performance in the monetary union. The basic condition for the real economic convergence is considered the approach among the structure of the economies that might be promoted also by transfers of the cohesion policy.
Catch-up and convergence is based on the economic growth. At the same time - also in relation with challenges of the globalisation and competitiveness problems of the European Union’s economy - the current average annual rate of potential growth in the European Union of 2.4% could fall to half this level on average in the coming decades
Since accession the new Member States have been following transition paths leading to substantial convergence. Yet the pace of this catch up will dwindle over time and may eventually stop. It is possible that the convergence of the new Member States will reach around three-quarters of the per capita GDP level of the EU-15, i.e. after the rapid initial convergence the EU-10 countries will increasingly constitute a stagnating ‘convergence club’.
New risks appeared. The new MSs have been experiencing a continuous fall in potential growth since 2008. The potential decrease in the dynamics of the potential growth in the medium term is of dramatic size in certain new NMSs. In these countries real convergence might stop in the short run and it might even come to a divergence. We call it ‘convergence crisis’.
The risk of shock repetition is high. These changes project further erosion of the growth potential in Europe. The trajectory of the permanent shocks threatens with the complete collapse of the European growth and catch-up model.
Keywords: real convergence, convergence crisis, potential growth, catching-up
JEL Classification: F43, F47, F15, E60, O11, O47