Statement on reactions to the study 20 years of euro

The study encountered a highly sensitive political environment and consequently prompted a large number of reactions. We therefore take this opportunity to clarify the following points:

Our recommendation: Reforms not withdrawal from the euro

The results of the study do not show that it would be better for a euro state to withdraw from the euro. On the contrary, those euro states that have not yet benefited from the euro must carry out reforms, particularly to increase competitiveness, in order to benefit from the euro. This was pointed out several times in the study. Withdrawing from the euro would entail unmanageable risks and would not therefore result in an improvement in prosperity for any of the countries as compared to the status quo. Reforms are therefore the only alternative.

Established status of the method

The synthetic control method is an established method for evaluating policy measures. A developer of the method - Alberto Abadie - applied it to a very similar situation, namely German reunification and the associated German-German monetary union.[1] The results were published in one of the most renowned political science journals in the world, the American Journal of Political Science. Puzello and Gomis-Porqueras used the synthetic control method to determine the winners and losers of the euro up to 2009.[2] Their results are comparable to ours for many euro states. The results were published in the equally renowned European Economic Review. Both journals require a peer review.

Weighting of the control groups

In the synthetic control method, the weighting of the control groups is determined by a mathematical method, so that countries that were very similar to the euro country under examination before its introduction of the euro, receive a higher weighting than countries that were less similar to it. In addition to GDP, relevant factors are the rate of inflation, the share of industry in gross value added, gross fixed capital formation and the sum of exports and imports, each measured as a % of GDP. This approach means that countries such as Bahrain can also be part of the control group for individual euro countries, as in the Puzello and Gomis-Porqueras study.

Limits of the method

For investigation purposes, the synthetic control method implicitly assumes that no exogenous factors significantly influence the development of gross domestic product in the analysed euro country, or in the countries of the associated control group, after the introduction of the euro. In a dynamically changing real world, this theoretical assumption is of course seldom the case; a fact which must be taken into account when interpreting the results. Our study explicitly points this out (p. 3).

You can find the English version of the study here.

You can find the French version of this statement here.

[1] See Abadie, Alberto, Diamond, Alexis & Hainmueller Jens, 2015. "Comparative Politics and the Synthetic Control Method", American Journal of Political Science, Wiley, vol. 59(2), pages 495-510.

[2] See Puzzello, Laura & Gomis-Porqueras, Pedro, 2018. "Winners and losers from the €uro," European Economic Review, Elsevier, vol. 108(C), pages 129-152.