Eurozone Economic Integration: Historical Developments and New Challenges Ahead

87 Pages Posted: 30 Oct 2024

See all articles by Fabio C. Bagliano

Fabio C. Bagliano

University of Turin - Department of Economics and Statistics; Center for Research on Pensions and Welfare Policies (CeRP); University of Turin - Collegio Carlo Alberto

Claudio Morana

Università di Milano Bicocca; Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Università degli Studi di Milano-Bicocca - Center for European Studies (CefES); Center for Economic Research on Pensions and Welfare Policies (CeRP); Rimini Center for Economic Analysis - Europe ETS; Rimini Center for Economic Analysis - HQ

Date Written: October 29, 2024

Abstract

The paper yields a structural account of economic integration in the Eurozone from its inception to post-pandemic developments by considering a broad range of convergence measures. We introduce a novel FAVAR framework, extracting the structural shocks driving the Eurozone business and financial cycles directly from the cyclical components they generate. Productivity advancements have been the critical trend convergence factor, shaping long swings in real, labor market, and financial dispersion. Subdued cost-push shocks were the key driver of Eurozone nominal and competitiveness convergence throughout 2015 but have become an all-rounded divergence force since then. Fiscal discipline imposed by the Stability and Growth Pact (SGP) increased real and financial divergence during all recessionary episodes, while the ECB expansionary monetary policy was a convergence factor. The SGP suspension during the recent pandemic recession and recovery has partially counteracted divergence pressures. Looking forward, convergence will crucially depend on how productivity dynamics and economic growth will fend off further unfavorable cost-push developments, which might become pervasive in a deglobalization-driven new macroeconomic regime.

Keywords: real, nominal and financial convergence and divergence, Eurozone, economic integration, recessions, financial crises, subprime financial crisis, sovereign debt crisis, pandemic recession

JEL Classification: E30, E50, C32

Suggested Citation

Bagliano, Fabio C. and Morana, Claudio, Eurozone Economic Integration: Historical Developments and New Challenges Ahead (October 29, 2024). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 546, Available at SSRN: https://ssrn.com/abstract=5003626 or http://dx.doi.org/10.2139/ssrn.5003626

Fabio C. Bagliano

University of Turin - Department of Economics and Statistics ( email )

C. so Unione Sovietica, 218 Bis
Torino, I-10134
Italy
+39 011 670 6084 (Phone)
+39 011 670 6062 (Fax)

HOME PAGE: http://web.econ.unito.it/bagliano

Center for Research on Pensions and Welfare Policies (CeRP) ( email )

Via Real Collegio, 30
Moncalieri, Turin 10024
Italy

University of Turin - Collegio Carlo Alberto ( email )

via Real Collegio 30
Moncalieri, Torino 10024
Italy

Claudio Morana (Contact Author)

Università di Milano Bicocca ( email )

Dip Economia Metodi Quantitativi Strategie Impresa
Piazza dell'Ateneno Nuovo 1
Milano, 20126
Italy
+39 0264483091 (Phone)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES) ( email )

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

Center for Economic Research on Pensions and Welfare Policies (CeRP) ( email )

Moncalieri, Turin
Italy

Rimini Center for Economic Analysis - Europe ETS ( email )

Piazza Ateneo Nuovo 1
Milan, 20126
Italy

Rimini Center for Economic Analysis - HQ ( email )

900 University Avenue
Riverside, CA 92521
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
6
Abstract Views
37
PlumX Metrics