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While CEE countries have been catching up to the EU average over the past 15 years, progress towards real convergence among the 12 countries that formed the euro area in its initial years has been disappointing. Experience has shown that initial convergence can unravel quickly in the face of exogenous shocks if it is not underpinned by a sound institutional framework and structural conditions that are conducive to productivity growth.
The crisis has shown that large capital flows to low-income countries can only contribute to sustainable real convergence if resources are efficiently allocated in the economy. One of the key factors that ensure success in a monetary union is a sufficiently flexible economy where price signals allow resources to be properly channelled towards high-productivity sectors. It is equally important to complement the single monetary policy with counter-cyclical fiscal and macroprudential tools at the national level in order to address at an early stage the risk of boom-bust cycles in euro area economies that are catching up.
Pursuing sustainable convergence is mainly a national responsibility. However, efforts at the national level should be complemented by structural reforms at the European level aimed at deepening the Single Market. Deepening the Single Market would allow country-specific shocks, especially to low-income countries, to be better absorbed. This is particularly important for the capital markets union, where substantial and swift progress is still needed.