How the Maastricht Criteria and the Stability and Growth Pact Affected the Convergence Process in the European Union : A Panel Data Analysis

The ECB monetary policy has been criticised for giving more attention to price stabilisation in Europe rather than encouraging higher growth and employment. It is now largely accepted that the Maastricht norms and the Stability Pact have imposed serious macroeconomic constraints on economic performance without taking into account specific problems of the individual economies. An interesting issue to examine is how the Maastricht obligations and the Stability Pact restrictions have affected the process of real convergence between the European economies in the last two decades. The purpose of this paper is to test for convergence in living standards, productivity, investment and unemployment among the European countries. From this analysis and using panel data estimation techniques, it is possible to detect any significant influence (favourable or not) of the Maastricht rules on real convergence. The proposed paper has the following structure: The introduction focuses on the importance of the Maastricht criteria and the Stability Pact. Part 2 explains the theoretical background of the convergence approaches, which are mainly used in the growth literature. Some stylised facts on the evolution of income per capita, output per worker, investment share and the performance of employment and unemployment rates are given in part 3, trying to identify any catch-up tendencies. The empirical evidence on real convergence, which is the core of the study, is given in section 4. The final section summarises and derives the main conclusions