Convergence or Divergence in the EMU?
The past decade has dramatically shaped the European economic landscape. After the global financial and economic crisis of 2008/09 hit the continent, the southern European periphery exemplified by Greece experienced a strongly diverging economic development. As capital inflows from the North dried up, the highly indebted southern euro countries running large current account deficits provoked fears of contagious sovereign defaults. The EU responded to the subsequently escalating 'euro crisis' with a series of institutional adjustments including the hitherto unwanted bail-out opportunities for individual member states. While these reforms were meant to strengthen supra-national capacities and cohesion, in 2016, UK citizens rather decided to exit the EU as the first country in history and being one of its economically powerful member states in the North. However, the corresponding heated debates about 'Grexit' and 'Brexit' on opposite sides of Europe also reflected the rising overall skepticism about the benefits from economic and monetary integration. Similar discussions across EU member states in fact created the impression that the European unification sooner or later might drift apart. The question of convergence or divergence of macroeconomic parameters among a diverse set of 28 EU countries is thus crucial for a smoothly operating EMU and the future integration process as a whole. In fact, the euro crisis highlighted clearly that a high degree of real and nominal homogeneity among the participating EA countries is important for both maintaining financial stability and finding a 'one size fits all' monetary policy for the core and the periphery. The purpose of this dissertation is therefore to empirically assess how the group-dynamic convergences and divergences in European macroeconomic developments affect the efficiency and stability of EMU. To this end, the first article, 'One Size Fits Some: A Reassessment of EMU's Core-periphery framework', follows a multivariate framework using the Macroeconomic Imbalance Procedure's scoreboard of indicators to cluster EU economies in terms of external balances, competitiveness, indebtedness, and economic performance. The country group pattern of European business cycles based on univariate output gap series is assessed in the second article, 'The core-periphery pattern of European business cycles: A fuzzy clustering approach'. And, finally, the third article, 'Global vs. group-specific business cycles: The importance of defining the groups', looks at multivariate European business cycles in a worldwide country sample. This allows to disentangle the European co-movements from those at a global level.
