New paper on the impact of the Covid-19 crisis on European divergence

This recent paper by Claudius Gräbner and his colleaques Philipp Heimberger and Jakob Kapeller explains the uneven consequences of the macroeconomic fallout from the Coronavirus and related economic policy responses. These factors are discussed against the background of an analysis of longer-term macroeconomic divergence in the Eurozone, an important reason for which is the increased focus on competition among European member states (see, for example, also our papers here or here).

The paper shows that the macroeconomic impact of the Corona crisis is estimated to be more severe in Southern Eurozone countries than in Northern Eurozone countries, which further reinforces the tendency of an increasing economic polarisation. This polarisation process can be traced back to existing differences in production structures and uneven vulnerabilities of the underlying growth models, which themselfes are caused by an increasing degree of competition among European member states and a resulting ‘race for the best location’. As a consequence, any policy response to the Corona crisis that does not take the deeper problems of structural polarisation into account and reduces the competitive pressure among member states will suffer from limited impact in the medium to long run.

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