Graph of the week: who really gained from the euro?

Back to the Eurozone briefly with the following graph found on FT's Alphaville last week, taken from a recent study done by the UBS. They try to find out who has benefited the most over the past decade from the euro, and a unlikely conclusion emerges – the peripheral economies experienced (in most cases) rapid increases in personal incomes, while the so-called core countries mostly lost out. (Click on graph to enlarge)

Source: FT Alphavile (taken from a report by the UBS)

Each country’s individual graph depicts income distribution within a country based on 10 grades of disposable income, aligned from left (the bottom decile) to right (the highest income decile). 

Several interesting conclusions arise. First the authors point out that in the "core" countries the poor got poorer while the rich got richer. This is evident in the cases Germany, Austria, Holland, and significantly in Belgium (a close to 50% drop in income in a decade!). In France it was the middle class who lost out the most. 

On the other hand, in "peripheral" economies like Greece, Portugal and Spain, it’s the poorest decile which benefited the most, even though noticeable growth in incomes was experienced across all income groups. 

Italy and Ireland, were the only two "peripheral" economies which have lost out, having disposable income decrease across income groups (apart for Italy's bottom 10% which have experienced a slight increase in income over the decade). 

However, the rise in "peripheral" economies' incomes has to be observed in relative terms, i.e. compared to much higher levels of income in "core" countries. In that perspective it is natural to notice a “catching up” of the periphery. After all, that was the point of the Eurozone convergence. 

On that point the authors of the study have an interesting conclusion on the burdens which are left once again on the "core" to bear:
"While the authors point to the move toward greater income equality between nations during this period as a positive trend, they also cautiously argue that their findings suggest that the core countries should not be expected to continue financing the rise in peripheral living standards:
Looking at the growth of real incomes over the first few years of the Euro’s existence, it is hard to argue against the idea that the peripheral countries should be taking more pain now. Core countries have had to accept a decline in real living standards, and it seems unrealistic to expect them to finance an increase in living standards for others."


  1. You're right, the idea was convergence, particularly in relative incomes. In that perspective I guess we can call eurozone a success? Apart from the fact that the lower classes are the ones that really lost out in the rich countries (Belgium, Holland or Austria)...

    As for the conclusion that the core should cease financing the periphery's rise in standards, what about Italy and Ireland, whose people are also among those who lost out?

    1. I don't know the exact reason behind their decrease of income, particularly in Ireland, which if you remember experienced a housing boom in the past decade. It would be interesting to look at the Italian and Irish examples in more depth

  2. I want to understand, Is the meaning of this graph that the common currency caused a wealth transfer from the strongest group to the weakest? And if so was that a fluke, or was that by design?

    1. Not necessarily and not directly, but the effect certainly implies a wealth transfer. Although, when you think about it, the idea of eurozone convergence was a convergence in income and living standards across the eurozone, so I guess it was by design.


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