The euro and European competition in a Finnish perspective

In this article we analyze what has been achieved by the introduction of the euro in terms of macroeconomic convergence and leveling of competitive conditions among the EMU member countries. In particular, has the convergence in nominal exchange rates resulted in divergence in real exchange and interest rates? And how has Finland fared relative to the EMU members? The answer is that real exchange and interest rates have diverged in the EMU after the introduction of the euro. This divergence is remarkably large in a historical comparison. The Finnish government faces a challenge of forming a policy aimed at dampening the domestic roots of the divergence as well as of influencing the policy-making at the EU-Ievel to avoid making the divergence put the entire EMU at stake.