How to Deal With Economic Divergences in EMU?

Since the launch of the euro, persistent and even rising disparities among member states have made it difficult to implement short-term or structural common economic policies. The article gives an overview of Euro area disparities in terms of growth and inflation and imbalances, mainly unemployment and current accounts. Four explanations are considered: the benefits of the single currency for catching-up countries, the weaknesses of the Euro area economic policy framework; the implementation of non-cooperative domestic policies which have induced excessive competition and insufficient coordination and hurt mainly the larger economies; and the crisis of the European continental model in a global world. Four strategies are discussed: increasing market flexibility; moving towards the knowledge society of the Lisbon Agenda; re-nationalising economic policies; and introducing a more growth-oriented policy framework.