ECB admits euro member convergence failed
The Eurozone's founding members are further apart economically than they were at the start of the convergence process, a "disappointing" outcome defying the premise that laggards would slowly catch up in a common currency bloc, the European Central Bank (ECB) said yesterday.
Early members failed to recognise that lower borrowing costs, a key benefit in the currency union, would only provide a temporary boost, and left unchecked, would actually lead to many of the troubles that plunged the bloc into its debt crisis.
"Progress towards real convergence among the 12 countries that formed the euro area in its initial years has been disappointing," the ECB said in an economic bulletin.
The commentary - which is unusually strong - from the bank highlights the fragility of the currency union, which is still fighting an existential crisis after Greece came close to being forced out after years of failed reforms and ballooning debt.
Though not a founding member of the currency union, Greece was included in 2001 and was among the 12 nations that started using the euro banknotes in 2002. Eurozone membership pushed down borrowing costs, fuelling unsustainable credit-driven growth, and governments assumed this would last, leading to unrealistic growth expectations. Once the boost ran out and growth faltered, debt levels rose quickly.
Ireland, Portugal, Cyprus and Greece have received international bailouts since the start of the Eurozone debt crisis and growth across the bloc is expected to be muted for years to come. (Reuters)