Is the Euro area converging or diverging Critically discuss whether Essay

Is the Euro area converging or diverging Critically discuss whether the Euro becomes a vehicle for creating divisions in Europe - Essay Example The union has undeniably attained some of these targets. It has assured price stability, making a striking change to its inflation prone member states. Most of the countries within the Euro area benefited from an accountable nominal interest rate reduction (Blanchard 2007). Due to the changes experienced in terms of the major domestic demand expansion and the persistent deterioration of their current accounts, the member countries also enjoyed a reduction in real interest rates. The Euro area has increased trade intensity for all countries lying within its dynasty. Within the Euro area, states that are more economically advanced have witnessed the greater financial integration. The union has accelerated this change. Lastly, it has enhanced the level of business synchronization (Allington, Kattuman & Florian 2005). However, despite the major achievements, the performance of the economy of the Euro area over recent years has been on the decline. The debt crisis and specifically the slow recovery from the 2008-2009 recession in the core EU Member States, has triggered many questions on the capabilities of the Union (Estrada, Là ³pez& Galà ­ 2013). The higher number of cases of debt crisis and inflation amongst its member states has caused arguments whether the endorsement of a common currency, may be behind the scenario. The currency endorsement has acted as a factor of divergence in terms of growth and unemployment (Andrà ©s, Eva & Javier, 2008). According to Estrada, Là ³pez and Galà ­ (2013), in order to examine the convergence and divergence of the countries, the performance of their labor markets, evolution of key competitiveness measures, current account imbalances and the factors affecting it such as productivity and wages have to be properly analyzed. All through the nine years of operation, the European Monetary Union was associated with a strong convergence in terms of lowering unemployment rates across the member countries.