Rich Europe, Poor Europe

Income convergence within the European Union has slowed with the accession of ex-communist countries in recent years, with disparities much larger than those found in the United States. Labor mobility also is much higher in the US, and the EU should take steps to decrease the supply of workers in depressed areas and increase it in booming regions.

From its earliest days, the European Union has aimed for balanced economic development across its many regions. The Maastricht Treaty contains the striking phrase “overall harmonious development.” But, however admirable this sentiment may be, there is no “scientific truth” about the “right” level of disparities and the correct speed of convergence.

Nevertheless, it is useful to compare economic disparities in the EU with those in the United States to assess regional convergence in Europe – bearing in mind, of course, that the US has been a nation-state for more than two centuries, while the EU is best seen as a confederation of 27 states under a supra-national structure.

Let us first take a historical look at the western part of the EU. In 1960, disparities in what later came to be known as the EU-15 were about twice as large as those between US states. Today, they are comparable with American income disparities. Income disparities have halved both in nominal terms when expressed in euros and in real terms when taking into account differences in purchasing power.

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