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The North-South Mystery

Upward convergence’ has been a key pillar of the European Union project, originally encapsulated in the Treaty of Rome (1957) in which the founding members expressed the desire to ‘strengthen the unity of their economies and to ensure their harmonious development by reducing the differences existing between the various regions.’ Without economic and social cohesion, the EU would be as manageable as an overly diversified industrial company.

The EU may have its detractors, but it did achieve upward convergence amongst its members over the last twenty years. It did not go smoothly, though: the positive trends during the 00s were interrupted by the Great Financial Crisis to resume in 2014 only. And to be interrupted again by the current crisis.

Dealt by fate, this new blow has hit the Southern European countries disproportionately compared to their Northern neighbors. This is due to the South’s greater reliance on small and medium size enterprises which are inherently more vulnerable (diversification, access to financing) and on services, chiefly tourism, since more affected by mobility restrictions and/or social distancing. The June ECB forecasts anticipate that the Euro Area GDP will decline by 9% this year, with Spain (-11.5%), France (-10.3%), Portugal (-9.5%) and Italy (-9.2%) underperforming the North (roughly -7%), thereby deepening the existing North-South divide in a material way.

But what is this socio-economic North-South divide which can be observed worldwide? At the global level, the Brandt Line has been used to show the split between the relatively richer nations of the North and the poorer ones of the South. The United States has its Mason-Dixon Line and U.S. Route 40, for example. The North-South divide exists not only in Europe as discussed above, but within its countries such as Italy, the UK, Spain and France. In Germany, a socio-economic divide alongside the Uerdingen Line is said to have appeared, almost superseding the historical West-East divide. The same pattern can be observed in South America (e.g. Argentina, Brazil) and in Asia, including China with its Qinling–Huaihe Line.* In fact, it even exists within large cities such as Paris, London or Manhattan. It is a key feature of the world of GoT too!

Michael Porter’s clusters may explain why certain economic centers emerge at the expense of their periphery, but why does it need to be so frequently alongside a North-South axis? It is a mystery yet to be elucidated. It seems like this pattern of divergence has entered the collective psyche to repeat itself irresistibly, endlessly, reinforced by resilient stereotypes.

To reboot its economy and prevent a reversal of economic convergence in the coming years, the European Union could approve a $750 billion European Recovery Funds in some shape or form as early as next week. The funds would be raised through the financial markets by the European Commission itself, leveraging its strong rating – which is a first touted as a political breakthrough. This noble initiative, which would provide a macro boost next year, is appreciable since equivalent to c.5% of GDP. That said, observations across the world and throughout history suggest that the forces opposing North-South convergence are formidable. If anything, this latest fiscal plan provides a sense of Europe’s mad ambition and resolve.

* I am leaving aside Korea’s and Vietnam’s North-South divide as too easily explained by current or historical geopolitical considerations

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