Abstract
Euro area countries have exhibited modest convergence prior to the financial crisis, but have started to follow diverging paths thereafter. Such divergence has been examined from many angles, and diverse narratives of the crisis have developed. Surprisingly, the gradual transformation of economic structures of euro area countries over the last 15–20 years has instead received less attention. This chapter presents evidence of ongoing changes in the allocation of countries’ resources across sectors. Some of such changes even preceded the launch of the euro.
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Notes
- 1.
Moreover, households, and to a lesser extent firms, took advantage of cheap and abundant liquidity (Fernández-Villaverde et al. 2013). When the euro area crisis hit, stressed euro area countries experienced “sudden stops” and there was financial fragmentation (Camba-Méndez et al. 2014). A “doom loop” ensued (Schambaugh 2012).
- 2.
Today we know that the euro has been accompanied by more reciprocal trade between euro area countries (and with no “fortress Europe”). Estimates on the higher degree of openness range from a few percentage points to a more significant increase in intra-euro area trade.
- 3.
Consequently, the borders of new currency unions could be drawn larger in expectation that trade integration and income correlation would augment once a currency union is created. For some qualifications see Wyplosz (2006), and Mongelli and Wyplosz (2008). Then, more recently these early findings were completely overturned when Glick and Rose (2015) re-run a new set of gravity models using a dataset including the euro and found no significant effect of currency union on trade.
- 4.
For a survey of early EMU scepticism, see “It Can’t Happen, It’s a Bad Idea, It Won’t Last: U.S. Economists on the EMU and the Euro, 1989–2002” by Jonung and Drea (2010).
- 5.
There is instead some early evidence of income convergence when looking at all EU 27 countries: i.e., when the faster growing new EU members are added, see ECB (2015).
- 6.
In fact, economic growth is the combination of various additional factors such as demographics, capital endowment, human capital, natural resources, comparative advantages, a trained labour force that is able to work, and so on. Several of these factors are beyond the scope of this chapter.
- 7.
Technically, the relation is the following: the sum of GVA-shares at current basic prices, plus taxes on goods and services, less subsidies on goods and services provides a measure of GDP at current market prices.
- 8.
The opposite picture arises when we examine at the sale and rental of properties as captured by the Real Estate Sector share in GVA (see Annex). Spain, as well as Portugal and Ireland had lower shares than the other EA countries. An above average increase in the importance of this sector can be noted in Greece. Extreme developments in Greece and Ireland also drive the increasing coefficients of variation.
- 9.
We regard Construction, Financial and Real estate services, as well as Public administration as not tradable. Classifying an entire sector as either tradable or non-tradable is a very crude measure.
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Annex: Additional Graphs and Tables
Annex: Additional Graphs and Tables
GVA Share of Agricultural Sector (in percent), 1995–2014
GVA Share of Real Estate Sector (in percent), 1995–2014
GVA Share of Wholesale and Retail Trade Sector (in percent), 1995–2014
GVA Share of ICT Sector (in percent), 1995–2014
GVA Share of Professional Sector (in percent), 1995–2014
GVA Share of Arts, Entertainment and Recreational Activities (in percent), 1995–2014
Sub-Sectors of manufacturing (in percent of total sub-sector GVA). Source: Eurostat and authors’ calculation
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Mongelli, F.P., Papadopoulos, G., Reinhold, E. (2017). Are Euro Area Economic Structures Changing?. In: da Costa Cabral, N., Gonçalves, J., Cunha Rodrigues, N. (eds) The Euro and the Crisis. Financial and Monetary Policy Studies, vol 43. Springer, Cham. https://doi.org/10.1007/978-3-319-45710-9_5
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