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When the founding fathers of the euro embarked on the project of Economic and Monetary Union, they expected that sharing a common currency would reduce differences in income levels across euro area countries. However, over the past two decades, income convergence among the founding members of the euro has not happened. And although newer members of the euro have narrowed their income gaps vis-à-vis the original twelve euro area countries, this trend, too, has stalled since the crisis. At the same time, track records on convergence as regards inflation and interest rates and economic cycles are mixed. What does this lack of convergence mean for the European project, and what can be done to re-start convergence?
