Core and Periphery in EMU: A Cluster Analysis

Abstract

The paper looks for inhomogeneities in the actual and prospective membership of the EMU by applying techniques of cluster analysis to a set of variables suggested by the theory of Optimal Currency Areas (OCA). The analysis reveals that the member countries may be divided into those belonging to the core (Germany, France, Austria, Belgium and the Netherlands) or to one of two peripheries, Northern or Southern (respectively, the Scandinavian countries, the UK, Ireland and Finland; and Spain, Italy, Portugal and Greece). These groups appear to be relatively well-defined; if the criteria of OCA theory are taken seriously this correspondingly implies a potential problem of ‘fit’ of the single monetary policy to the needs of the member countries.