Structural Change and Economic Dynamics 16 (2005) 7–33 200323 European Monetary Union: nominal convergence, real divergence and slow growth? Eckhard Hein ∗ , Achim Truger WSI in der Hans-Boeckler-Stiftung, Hans-Boeckler-Str. 39, Duesseldorf 40476, Germany Received 1 January 2003; received in revised form 1 March 2003; accepted 1 June 2003 Available online 18 September 2003 Abstract It is now widely acknowledged that the structural characteristics of the countries to form the Euro- pean Monetary Union (EMU) did not meet the conditions of an optimum currency area (OCA) when the euro was introduced in 1999. The OCA criteria appear to have little relevance for monetary inte- gration, because they fail to capture the importance of macroeconomic policy institutions for growth and convergence across a currency union. This paper examines the effects of the EMU framework for monetary, fiscal and wage policies on overall growth and on convergence across the euro area. It is concluded that the years before and after the introduction of the euro were characterized by a restrictive policy mix that has not been conducive to aggregate growth nor to real convergence. © 2003 Elsevier B.V. All rights reserved. JEL classification: E58; E61; F15 Keywords: European Monetary Union; Nominal convergence; Real convergence; Macroeconomic policy mix 1. Introduction It is now widely accepted that the structural characteristics of the countries to form the European Monetary Union (EMU) did not meet the criteria of an optimum currency area (OCA) when the euro was introduced in 1999. Despite significant convergence of nominal variables, the economies of the potential member countries varied a lot in terms of GDP growth, labour productivity and unemployment rates. The degrees of integration of labour, goods and financial markets were generally considered to be lower than in the USA, the ∗ Corresponding author. Tel.: +49-211-7778215; fax: +49-211-7778190. E-mail address: eckhard-hein@boeckler.de (E. Hein). 0954-349X/$ – see front matter © 2003 Elsevier B.V. All rights reserved. doi:10.1016/S0954-349X(03)00049-3