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Real Divergence: How to Fix It?

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Report on the State of the European Union

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Abstract

Economic convergence used to be high on the agenda of European integration. But 25 years of functioning of the single market and 20 years of existence of the euro have increased, rather than decreased, national and regional differences in economic performance. Even before the 2008–2009 economic crisis and the subsequent sovereign debt crisis, divergences were manifest, though largely ignored. Since then, real economic divergences have widened and the underlying causes deserve attention. Among them, the rather poor performance of cohesion policies implemented with the European budget seems significant. Current debates about the future and the financing of the European Union (EU) budget will be analyzed in the light of economic convergence. Particular attention is devoted to the proposal recently made by the Commission for a new Multiannual Financial Framework covering the period 2012–2027 that includes significant changes in the main EU common policies (CAP and Cohesion policies), as well as more minor changes on the revenue side of the EU budget.

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Notes

  1. 1.

    Economic performance indicators are many, and the various sources of data often display significant differences in figures, that may be due to different statistical methodologies or differences in the precise definition of economic aggregates. Thus, Eurostat and OECD National Accounts data do give different figures for the same aggregate. Gross domestic product (GDP ) is the most widely used indicator of economic performance; but it measures production on the territory considered, not income. Gross national income (GNI) is a better measure of income accruing to the residents of this territory, and may be significantly different from GDP in the case of a small, open economy, such as Luxembourg, Ireland or regions in the EU. As is well known, these indicators are not good measures of well-being. See Stiglitz-Sen-Fitoussi Commission (2009) and Chap. 12.

  2. 2.

    Recent empirical studies of economic convergence in the EU include Alcidi et al. (2018) and Diaz del Hoyo et al. (2017). Both offer additional references.

  3. 3.

    Although when Ireland and Luxembourg are eliminated from the sample, the inversion of the last two years disappears.

  4. 4.

    This corroborates results obtained in other studies using different, more sophisticated methods to assess the degree of real convergence, in particular Alcidi et al. (2018) and Esposti and Bussoletti (2008). Once again though, it should be kept in mind that regional GDP data are extremely fragile, as the methods by which they are obtained are to a large extend conventional.

  5. 5.

    Two points of caution though: officially reported unemployment rates are influenced by labor market institutions, which may explain part of country-specific patterns; and the map uses the administrative definition of regions in EU, implying a high degree of heterogeneity in size, economic diversity and so on.

  6. 6.

    However, it should be noted that labor costs represent only a fraction of total production costs, and a small one in most modern economic activities.

  7. 7.

    Adding to this prolonged productive investment slump, there has probably been a significant amount of capital scrapping during and after the Great Recession. Unfortunately, data on the productive capital stock are not reliable due to the conventions used in building the figures.

  8. 8.

    See, in particular, the various installments of iAGS reports: https://www.iags-project.org/.

  9. 9.

    EFSI is hosted by the European Investment Bank. For more information on EFSI, its functioning and achievements so far: http://www.eib.org/efsi/#.

  10. 10.

    Of course, “net balances” are not an appropriate measure of the economic effects of the EU budget on individual member states, for reasons that have presented in Le Cacheux (2005) and in a number of more recent studies and are summarized in Núñez Ferrer et al. (2016).

  11. 11.

    The most recent annual EU budget data are for 2017: out of a total of € 158 billion, 37% went to “natural resources” (mostly CAP) and 34% to cohesion policies. See https://europa.eu/european-union/about-eu/money/expenditure_en.

  12. 12.

    A representative sample of this literature includes Puga (1999) and more recently Becker et al. (2010). As argued above, the fragile nature of regional GDP data used in these studies makes their results difficult to interpret, and possibly misleading.

  13. 13.

    Among the innovative measures contained in the Commission’s proposal for the next MFF are a number of small additions to the main source of revenue. Current financing of the EU budget essentially relies on national contributions, and mostly on the GNI-based national contribution. In the future, additional, more genuinely own resources would come from the receipts of the EU Emission Trading System, a tax on plastic bags, and a small fraction of the revenue from corporate income taxation after the adoption of the Common Consolidated Corporate Tax Base (CCCTB, see Chap. 4). Obviously, these changes are quite modest, compared to what had been proposed in the HLGOR report (Monti et al. 2017), and some national governments may well block them in the Council, where budget decisions require unanimity. In any case, they would not alter the overall effect of the EU budget on divergence.

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Authors and Affiliations

  1. Université de Pau et des Pays de l’Adour, Pau, France

    Jacques Le Cacheux

  2. Ecole Nationale des Ponts et Chaussées, Marne-la-Vallée, France

    Jacques Le Cacheux

  3. Sciences Po, Paris, France

    Jacques Le Cacheux

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  1. Jacques Le Cacheux
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Correspondence to Jacques Le Cacheux .

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Editors and Affiliations

  1. OFCE/Sciences Po, Paris, France

    Jérôme Creel

  2. OFCE/Sciences Po, Paris, France

    Éloi Laurent

  3. Université de Pau et des Pays de l’Adour, Pau, France

    Jacques Le Cacheux

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Le Cacheux, J. (2018). Real Divergence: How to Fix It?. In: Creel, J., Laurent, É., Le Cacheux, J. (eds) Report on the State of the European Union. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-98364-6_7

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  • DOI: https://doi.org/10.1007/978-3-319-98364-6_7

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  • Publisher Name: Palgrave Macmillan, Cham

  • Print ISBN: 978-3-319-98363-9

  • Online ISBN: 978-3-319-98364-6

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

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