Disparities could be source of crises in Europe

The European Union’s central and eastern members might be catching up with wealthier western Europe, but the nagging north-south economic divide is actually growing wider, raising the age-old question of why Europe’s southern regions are unable to match the prosperity of the industrious north.

According to a just-released study prepared for EU finance ministers, GDP in the 11 mostly central and eastern European countries that joined the bloc in 2004 has grown faster than the west at an average combined rate of 6 per cent. It has fueled an increase of more than 200 per cent in real per capita income in some newer EU member countries from the east between 1999 and 2016, the study found.

Yet the gap between north and south has grown wider at the same time. According to data from the International Monetary Fund, Germany’s per capita GDP surged 19 per cent from 2010 to 2016, while the figure in the Netherlands rose 14 per cent and in France it increased 13 percent.

In contrast southern countries, which had lower GDP in 2010 to start with, grew much more slowly, widening the wealth gap. In Italy it rose only 6 per cent, output increased 10 per cent in Portugal and actually fell 7 per cent in Greece in the same period.

“This pattern, reflecting east-west convergence but north-south divergence within the euro area, can be observed in a number of indicators such as real wages, investment and consumption,” said the analysis by the Centre for European Policy Studies (CEPS) think tank.

Fabrizio Tassinari, Executive Coordinator of the School of Transnational Governance at the European University Institute, terms the growth divide a “crystal curtain”.

Though the prolonged recession that began in 2008 has subsided, “it left behind a widening gap between the fiscally pious nations above of the Alps and the profligate countries in the south”, writes Tassinari. “Over the past half-decade, this rift has been explained through a myriad of perspectives: from social trust and tax collection, to solidarity and liability. But underpinning all these explanations is a deep-seated governance divide, which is eroding Europe’s social and political fabric.”

Long struggling with the issue, the EU is keen that its remaining 27 member countries will stay after Britain leaves next year, and knows they should better converge economically. Wide economic disparities could be the source of future crises. The gap also fuels euro-sceptic parties that could threaten the future of the union itself.

Tassinari says that sources of the divide predate recent history. As the southern doldrums continue, eastern Europe is emerging from the shadow of its communist past. Economies in the 11 mostly central and eastern European countries that joined the EU in 2004 have together grown almost four times as fast as the developed nations in the west.

Neither the east-west convergence nor the north-south divergence is linked to euro membership, the study said, forecasting that the east-west convergence will continue, but questioned whether the historic north-south gap will close.

Perhaps Italy is the most striking example of the north-south divide within a single country. According to the Bank of Italy, per capita GDP is more than 40 per cent lower in the south than it is in the centre and north. The phenomenon is so much a part of the country’s history that “the southern question” has been part of the curriculum studied by generations of school children.

Tassinari notes that a one size fits all approach to economic policy ignores the huge cultural differences. “European institutions have operated on the assumption that reforms are in every country’s best interest and backed by northern member states imposed austerity measures on the south,” he writes. “Yet the euro crisis revealed that southern Europe is asked to adopt a set of norms that take the diligent north as their model.”

So as countries such as Poland and the Czech Republic continue to busily retool, the beautiful — and some say bedeviled — south of Europe continues its timeless ways. Perhaps the embrace of the Mediterranean and its sun-drenched coast is eternal enough for many.

Underpinning all explanations is a deep-seated governance divide, which is eroding Europe’s social and political fabric