Core-periphery divergence and secular stagnation in the Eurozone

Macroeconomic Evidence and Policy Proposals Beyond Unconventional Monetary Policy

This paper provides empirical evidence about the widening divergence between the economic performances of core eurozone countries and peripheral economies. We note that, while core economies operate close to full employment, there are evident signs of secular stagnation, i.e. widespread long-term unemployment and reduced growth potential, in the periphery. In such a context, we stress that the unconventional monetary policy implemented by the European Central Bank since 2015 has proved largely ineffective to stimulate investment demand and economic recovery in the periphery. More than this, it may even deepen the existing gap between core and peripheral countries. We suggest that a reform of EU industrial policy, which puts emphasis on the productive development of underdeveloped regions in the euro area, stands out as the best strategy against the eurozone core-periphery divide and for improving the functioning and effectiveness of EU macro policies.