Economic Dynamics in the Eurozone Facilitates Efficient Monetary Policy

The economic development of many eurozone countries has been levelling up in the last few years. In particular large economies like Germany, France and Italy are increasingly in lockstep with the eurozone.

"In principle, the economic dynamics in the eurozone are sufficiently in sync", says Dr. Marcus Kappler, researcher at the Centre for European Economic Research (ZEW). "Therefore, the European Central Band meets an important criteria to pursue an efficient monetary policy." In concrete terms this means that the ECB can counteract inflation or deflation and, thus, indirectly give impetus to investment activities in individual member states. However, weaker economies like Portugal or Greece increasingly differ from the economic development of the eurozone. These are the finding of a study conducted by ZEW, which analyses the economic cycles of individual countries in comparison to the economic development of the eurozone as a whole.

The study investigates the time between 1980 and 2006. The findings indicate that the economic development of Germany and Italy show the same economic cycles as the eurozone. Spain and France are also increasingly levelling up with the economic situation of the eurzone as a whole. This is mainly because the introduction of the euro facilitated the cross-border trade and made it more efficient. In total, trade, in particular between these countries, has considerably increased in the last few years and the economies have opened up further.

Interestingly Great Britain shows similar developments. Even though the country withholds the important step of introducing the euro, it is levelling up with the eurozone with regard to the economic situation. "Due to its foreign trade, Great Britain is closely linked to the large economies in the eurozone and, thus, cannot escape the impact of the economic dynamics of the eurozone", Kappler explains.

Naturally there are some exceptions. In particular weaker economies like Greece and Portugal differ from the development of the eurozone as a whole. This trend increased in the last few years. As these countries are not as highly industrialised as other economies in the monetary union, they do not have close trade ties to other eurozone countries.

The ZEW study compares the development of the gross domestic product in individual countries with the aggregated gross domestic product in twelve countries, which have been using the euro as common currency since 2006.

For more information please contact

Dr. Marcus Kappler, Phone: 0621/1235-157, E-mail: kappler@zew.de