This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries.The economic situation and policies of the Euro Area were reviewed by the Committee on 29 April 2021. The draft report was then revised in the light of the discussions and given final approval as the agreed report of the whole Committee on 9 June 2021. The Secretariat’s draft report was prepared for the Committee by Filippo Gori and Álvaro Pina under the supervision of Pierre Beynet. Statistical research assistance was provided by Paula Adamczyk, Mauricio Hitschfeld, Markus Schwabe and Patrizio Sicari and editorial assistance by Poeli Bojorquez, Jean-Rémi Bertrand, Emily Derry and Alexandra Guerrero. The previous Survey of the Euro Area was issued in June 2018.Information about the latest as well as previous Surveys and more information about how Surveys are prepared is available at http://www.oecd.org/eco/surveys.

The euro area response to the crisis was strong and followed by a swift recovery, but risks remain.

After over a decade since the global financial crisis, the currency union is today facing a new challenge of different nature; in spring 2020 the COVID-19 pandemic forced most euro area countries to shut down part of their economies,precipitating the euro area into a recession of unprecedented nature and magnitude. Subsequent waves of infections plunged euro area economies into a new, albeit milder, contraction that further worsened the socio-economic consequences of the crisis. Over one year after the beginning of the pandemic, infections abated thanks to ambitious vaccination campaigns but the risk of another worsening of the sanitary conditions due to new virus variants still looms.

During the first decade of the currency union, business cycle fluctuations among euro area countries were relatively synchronised and similar in magnitude. This concordance disappeared during the 2008 financial turmoil and the following European sovereign debt crisis, a time when key flaws in the architecture of the euro area became apparent. The recovery helped reduce cross-country differences in unemployment and output gaps, but countries worst hit by the crisis took much longer to recover, and in some cases negative consequences of shocks became entrenched. The COVID-19 crisis could lead to a resurgence in euro area cyclical di-synchronisation, risking to exacerbate economic divergence among member states and putting to the test the macroeconomic stability of the currency union. Diverging cyclical paths among euro area countries originate from differences in economic structures and domestic institutions. However, such differences are compounded by features in the economic policy architecture of the currency union – such as the lack of a common fiscal stabilisation tool – and by remaining frictions in the functioning of the common labour and financial markets. Reforms to the common euro area economic policy framework combined with those to improve labour and capital mobility across euro area members are needed to foster cyclical convergence in the currency union.