Structural convergence and monetary integration in Europe

In the run-up to EMU, academic economists generally concluded the EU as a whole was not an optimum currency area (OCA). An important reason was the lack of structural convergence between the potential members of the monetary union. Nevertheless, the euro area currently consists of twelve countries. In the near to medium future, twelve additional countries will become EU Members; most of these countries have announced they want swift euro area entry. This paper reviews the literature on optimum currency areas to clarify the concept of structural convergence in the context of monetary integration. In addition, we operationalise OCA theory to assess structural convergence within Europe. The available evidence indicates considerable divergence within the current euro area and a generally slow process of convergence. In contrast, a number of new EU entrants have converged significantly in recent years towards levels of at least some existing members.