Eurozone inequality proves economic catchup by poorer states isn’t a given

Economists generally study inequality – how big income gaps between households are – at the national level. That’s understandable given it’s where major policy choices tend to happen, but this can sideline other issues such as global inequality (income inequality between individuals around the world is traumatically high but encouragingly falling). Fascinating new research looks to fill another such gap: inequality trends across the EU.

Unsurprisingly, EU-wide inequality is high – similar to that of Latvia, the third-most unequal EU member – but it’s lower than in the United States. Importantly, 20% of EU inequality is down to income gaps between rich and poor member states, while just 1% in the US relates to differences between the states. The importance of these gaps in determining overall inequality between individuals across the EU helps explain the most interesting finding of the research: EU inequality has declined post-financial crisis, but in the euro area inequality has been slightly increasing.

What’s going on? Fast-growing eastern Europe, largely in the EU but not

the eurozone, has narrowed the gap with older and richer EU members.

But incomes among southern eurozone members such as Greece and Italy have stagnated, falling further behind Germany. The main takeaway? Don’t take economic catch-up by poorer countries of their richer neighbours for granted. We should know. In the late 2000s, UK income levels were just 6% lower than those in Germany but the slow growth of the last decade means this gap had doubled to 12% pre-pandemic.