In the US, for example, GDP per capita in the richest state is still around twice that of the poorest state, which is roughly the same gap as in the euro area today. [9] But US states have had relatively correlated cycles since around the 1930s. [10] When the euro area was established, there were conflicting views on how cycles would respond.
According to the “specialisation hypothesis”, monetary union would allow countries to exploit their comparative advantages and increase inter-industry trade. This would expose countries to different industrial shocks, and business cycles would become less correlated. [11] The alternative view was the “endogeneity hypothesis”, which held that the euro would lead to greater intra-industry trade. Industrial structures would therefore become more similar and cycles more synchronised.