Adopting the Euro: Comparing country performance

This research investigates whether joining the European Monetary Union and losing own’s national monetary policy affected the economic growth of Eurozone countries. By using the synthetic control method, it creates counterfactual scenarios to estimate how each Eurozone country would have performed had it not adopted the euro.

Our findings indicate that most Eurozone countries experienced minimal changes in economic growth post-adoption. Notably, Portugal was one of the mild losers, while Ireland emerged as a clear winner. The study reveals that the euro’s impact varied significantly across member states. For instance, in Portugal, adopting the euro led to decreased private consumption and net exports, contributing to an overall mild negative economic impact. On the other hand, Ireland’s economy benefitted substantially, primarily due to increased private consumption and investment.

Additionally, we asked if euro area nationals gained with the euro adoption by conducting a similar exercise using the Gross National Income (GNI) instead of the widely used GDP measure. Most conclusions remain except for Ireland. While Ireland’s economic gains from the euro adoption remain positive, they are considerably reduced when accounting for profits and income earned by foreigners. This highlights the significant role of multinational corporations in Ireland’s economic growth. 

The analysis emphasizes that while the euro spurred government consumption and trade across the region, it also deterred private consumption and investment in several countries. These results contribute to the ongoing debate about the economic benefits and drawbacks of the European Monetary Union, particularly highlighting the varied experiences of adopting states.

Click here to go to the paper by Ricardo Duque Gabriel and Ana Sofia Pessoa.