Are the Countries of the Euro Zone Sufficiently Homogeneous to Share the Same Currency?

Virginie COUDERT * Chercheur associé, CEPII et EconomiX-CNRS.

Cécile COUHARDE ** Professeur des Universités, Université Paris Nanterre et EconomiX-CNRS.

Carl GREKOU * Économiste, CEPII ; chercheur associé, EconomiX-CNRS, Université Paris Nanterre.

Valérie MIGNON ***** Professeur des Universités, EconomiX-CNRS, Université Paris Nanterre ; conseiller scientifique, CEPII.

This paper assesses heterogeneity between member countries of the eurozone, and its evolution over time, by measuring their disparities in terms of equilibrium exchange rate paths. Relying on cluster and factor analyses, we highlight the existence of two groups of countries before the launch of the euro; Greece between identified as an outlier. Extending the period under study, our findings suggest that the configuration of the euro area has become more fragmented since the launch of the single currency as dissimilarities across and within groups of countries have increased.