Chapter 3 EU Integration and the Centre Periphery Divide: Growth and Structural Change in Southern and Eastern European Countries

The recent European crisis has raised a number of concerns among economists about the persistence of significant productive and competitiveness differences across national economies within the European Union (EU). Such differences can be seen as both a major root cause underlying the crisis and as an important factor explaining the current political difficulties within the EU. The big divide between core and periphery is taken into account in this chapter, which focuses on the processes of structural transformation in the European periphery. We intend to contribute to a better understanding of structural changes in Europe and of their potential impact on future growth prospects and overall convergence/divergence dynamics. A comparison of the experiences of two groups of peripheral countries is undertaken, based on a sample of old member states of Southwestern Europe and of new member states of Eastern Europe. A descriptive analysis is made of the trends occurred in the structure of production, employment and trade, examining this evidence in the light of technology and skill-based industrial classifications. Comparisons are made for both the pre and post-crisis periods. Changes in the economic structure towards more skill- and technology-intensive sectors were relatively modest in Southwest Europe, whereas they increased rapidly in Eastern Europe. Notwithstanding, both groups of countries have experienced a strong deterioration of the growth dynamics after 2008, which seems to reflect the strong emphasis of economic policy on financial market stabilisation and a relative neglect of policies targeted to the recovery of investment and to the reinforcement of exporting capacities. The solution to overcome economic retardation requires inevitably export-led growth and the building up of a more competitive economy. This, in turn, requires the design of an adequate industrial policy.