Unequal growth and the single currency: the fiscal policy paradox

A single currency was introduced in Europe to further economic convergence. In the event it produced two results that led to more rather than less even development in the Euro zone. First, the elimination of exchange rate adjustment produced diverse impacts on the trading relations of members with the rest of the world. Second, the single currency eliminated direct coordination between creation of domestic liquidity and individual government's fiscal policy. These two common policies had widely different impacts on individual countries which has led to increasingly uneven development across member states.