In a union based on shared values, hardship in any one country should be a concern for us all. And a lack of market-based convergence raises the need for individual transfers, which exist at country level but are not part of the social contract on which our monetary union is founded.
Second, the lack of real convergence in income levels is, more often than not, the result of a lack of convergence in institutional quality. Slide 6 shows that there is a clear relationship (albeit not necessarily causal) in Europe between the quality of institutions and GDP per capita.5 Large differences in institutional quality, in turn, can complicate the conduct of monetary policy.