It is well known and widely accepted by
economists that the characteristics of the European countries that become the
Eurozone in 1999 did not match the requirements of an Optimum Currency Area
(OCA). The only criteria for membership of the new area were nominal. A strict
level of convergence in inflation and interest rates was imposed. In addition
to the nominal convergence (monetary), a process of convergence of nominal
incomes in the new monetary unit was expected to be generated with the monetary
integration. After summarizing the criteria for a successful currency area in
the context of the OCA theory, we study the real and nominal convergence
process for an older group (11) of countries to establish whether or not these
countries form an OCA. We apply the original conditions imposed on ADF tests,
together with the Schmidt-Phillips
tests, and we estimate fractional differential process to overcome the
disadvantages of the traditional tests. We conclude that a process of real
divergence and nominal convergence does exist. We think this is a source of
genuine imbalance in the European integration process that can destroy the harmonious development of a European Monetary Union.
JEL Classification: C01, E24, F31, J31.
Keywords: Monetary integration, Optimum Currency
Areas, real and nominal convergence, spectral analysis and total factor productivity.