Internal Divergence in Monetary Unions: A Comparative Case Study of Germany, Italy, and Greece

DOI

10.2991/978-94-6239-801-6_60How to use a DOI?

Keywords

Internal Divergence; Optimum Currency Area; Heterogeneous Transmission; Cumulative Causation; Eurozone

Abstract

It has been over 20 years since the eurozone was set up, but member states still face lasting gaps in economic growth, employment rates, and overall competitiveness. This study focuses on two core issues: First, through which channels does a unified monetary policy lead to long-term winners and losers among different member states? Second, why has this internal divergence persisted for so long, without causing institutional collapse or any member state deciding to exit? To answer these two questions, the paper carries out a comparative case analysis of Germany, Italy, and Greece, combining perspectives from Optimum Currency Area (OCA) theory, Heterogeneous Agent New Keynesian (HANK) models, and cumulative causation analysis frameworks. The results indicate that OCA criteria can effectively predict national-level outcomes: Germany belongs to the winner category, Greece represents a comparatively disadvantaged case, and Italy stays in the stagnant middle tier. The study also identifies four micro-level transmission channels as the main driving factors: the non-neutral structural setup of monetary policy, labor market segmentation, industrial agglomeration paired with financial Dutch disease, and uneven fiscal capacity across states. These channels magnify the asymmetric effects of the single monetary policy, creating a self-reinforcing divergence cycle that locks pre-existing economic gaps into a suboptimal equilibrium. This research has two key contributions: it builds a systematic analysis framework explaining why internal disparities in the eurozone keep existing and why exit mechanisms fail to work, and it puts forward targeted policy recommendations for the reform of the monetary union.

Copyright

© 2026 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Yuhan Fang
PY  - 2026
DA  - 2026/10/23
TI  - Internal Divergence in Monetary Unions: A Comparative Case Study of Germany, Italy, and Greece
BT  - Proceedings of the 2026 2nd International Conference on Financial Innovation and Marketing Management (FIMM 2026)
PB  - Atlantis Press
SP  - 556
EP  - 571
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6239-801-6_60
DO  - 10.2991/978-94-6239-801-6_60
ID  - Fang2026
ER  -