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ECB say eurozone convergence disappoints, Italy weak

Recovery set to broaden further, says central bank

30 July, 19:57

(ANSA) - Rome - Progress towards real convergence among the 12 original eurozone countries has been "disappointing", with Italy among the laggards, the European Central Bank (ECB) said Thursday. The central bank singled out Italy in particular for its below-average economic growth since the eurozone founding in 1999, contributing to an increased divergence between economies in the euro area.

In an economic bulletin, the ECB also looked at the current economic picture, and said that the nascent recovery in the eurozone is set to broaden. The ECB reported "moderate growth" in the April-to-June period of this year, with the prospect of a further broadening of the economic recovery. Measures taken by the central bank, along with structural reforms, rebalancing of budgets, low oil prices and exports should all help drive domestic demand, the ECB added.

Meanwhile, the goal of economic convergence among the original eurozone members was undermined in weaker States like Italy, the report said.

Such factors as low capital inflows, labour productivity that is "well below the euro average", and a poor quality of governance of public institutions have all contributed to the economic weakness.

"Little real convergence has taken place among the euro area economies since the establishment of the euro, despite initial expectations that the single currency would act as a catalyst for faster real convergence," the ECB wrote in the bulletin.

"There is no clear relationship between relative GDP per capita levels in 1999 and their relative growth between 1999 and 2014," it added. "Italy, initially a higher-income country, recorded the worst performance, suggesting substantial divergence from the high-income group".

That predated the global economic crisis that began in 2007, suggesting that more deep-rooted factors were at play among the original 12 eurozone members.

The bulletin focussed attention on the "quality of domestic institutions and governance" in relation to their economies' per capita income growth. The ECB said that countries with a higher ranking in terms of governance tended to also show higher income levels. It added that the euro-area countries that did not show convergence - or, in fact, diverged in the pre-crisis years - were also the States with the poorest rankings in terms of governance.

Those, it said, included Italy, Greece, Spain, and Portugal.

Such a low ranking "reflected such factors as the effectiveness of government, the quality of the regulatory environment and the size of the informal economy".

"All these factors have a significant bearing on long-term growth," added the report. (ANSA).

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