Divergence in Europe

While most of the world pretty much ignores what is happening in Europe (with the exceptions of Brexit and the Gilettes Jaune protests in the United Kingdom and France respectively), there is no doubt that the union is under strain and that very little has been resolved since the PIIGS government debt crises of the post-Great Recession period.  In this posting, I want to look at how Europe has increasingly become a union of the unequals as the economic fate of the member states diverge from each other.

Let’s start with this map which shows GDP Per Capita (in current US dollars):

Here are the top four nations when measured using GDP per capita:

Luxembourg – $104,103

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Switzerland – $80,190

Norway – $75,505

Ireland – $69,331

In contrast, we find Croatia at $13,924, Poland at $13,812, Hungary at $14,225 and Latvia at $15,594.

The European Union has policies in place that are supposed to combat economic divergence by redistributing wealth from richer nations to poorer ones.  According to this publication by the World Bank, a hallmark of EU policy is the redistributive nature of tax and benefit systems which are intended to reduce poverty and inequality across EU nations, giving all of its citizens access to roughly equal social programs including pensions.  

In fact, such is not particularly the case.  As you can see on this graphic, GDP in Purchasing Power Standard (measured using the volume of GDP of each nation and dividing it by the nation’s purchasing power parity which removes price level differences between nations) per inhabitant has remained low for eastern European nations in general as well as Italy, Spain and Portugal when comparing data from 2004 to 2014:

Here is a bar graph which shows the same information current to June 2018, clearly showing that GDP in purchasing power standard varies widely across the EU:

Lastly, here are line graphs for several European nations showing how GDP in purchasing power standard has changed over time:

1.) Germany:

2.) Spain:

3.) Italy:

4.) Portugal:

5.) Greece:

6.) United Kingdom:

Since Ireland was one of the debt transgressors of the European debt crisis, let’s take a look at the graph showing how Ireland’s economic situation has improved:

It is very clear that economic divergence is present in Europe with Northern European nations becoming economically stronger while their counterparts to the south become economically weaker even with the European Union’s redistribution mandate.

While there is no current debt crisis facing Europe thanks to the massive rescue efforts during the early part of the 2010s, it is quite apparent that there are two Europes; the haves and the have nots, a situation that will make the union of the unequals harder to maintain.  As time has passed, it appears that the member states of the EU are suffering from economic divergence rather than economic convergence, one of the goals of unifying European states in the first place.

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