This paper will analyze the issue of structural convergence in the Eurozone: the concept, the role, history and the relationship between the perceived “need” for this type of a convergence and political and economic realities.
Background
Nominal convergence is the key to the functioning of a monetary union. It determines the effectiveness of monetary policy, especially in an organization like the economic and monetary union (EMU, or Eurozone), where monetary centralization operates in the environment of decentralized fiscal structures, limited fiscal transfers and very limited labor mobility. Real convergence is crucial for political and social stability, which in turn determines the degree of commitment to the preservation of the common endeavor – the EU itself. Finally, structural convergence determines both the effectiveness of common policies and ultimately the form of the EU commonality itself.
The key role of structural convergence above is not ignored by European authorities. Their answer appears to be twofold: On the one side, steps are being taken to increase European integration by expanding the common economic institutions. The major steps here are the banking union (in the process of implementation) and the capital markets union (in the beginning). On the other side, the idea of structural convergence is understood as a process of creating the similar (if not the same) legal and institutional environment in all areas of economic activity in all states sharing the common currency, provided that the autonomy of individual states and hence the existing principles underlying the European treaties are preserved.
Data and Methods
Two types of structural convergence actions are possible within the boundaries of the EU and the Eurozone. One, which could be called the “absolute” structural convergence, is the transfer of institutional arrangements, policy formulations, and decision-making procedures at the EU (or the Eurozone) levels. Participating member states experience 100% loss of autonomy in such cases. A second type of structural convergence addresses the situation in which the institutional or policy arrangements in different countries are getting closer together (becoming more similar), but jurisdiction remains on the national level, with no (or very limited) common EU action.
Results and Conclusions
Structural reforms – i.e. structural convergence – are indeed useful, and if designed thoughtfully, may be the key for overcoming real divergence.