THE EURO’S DIFFICULT FUTURE Competitiveness Imbalances and the Eurozone’s North-South Divide

Competitiveness imbalances between countries and regions tend to be wide and persistent. As a result, the spatial distribution of high- and medium-value added activities is not uniform and collides with the worldwide tendency towards an equalization of workers’ education levels and aspirations. In the eurozone, this is creating a sharp divide between those areas predominantly located in Northern and Central Europe displaying relatively high per-capita income and low unemployment (the “North”) and those low competitive areas of South Europe with high structural unemployment hitting young cohorts particularly hard (the “South”). Such a divide creates growing tensions between member countries and fuels hostility towards European Union institutions. This report illustrates why this divide is structural, cannot be tackled by macroeconomic policies, and could threaten the euro’s survival.