Abstract: This study empirically explores whether there is an asymmetry between the competitiveness of core and periphery European Union (EU) economies in the post economic and monetary union (EMU) period, including the EMU sovereign debt crisis. For this purpose, this study comparatively analyzed the influence of the interest rates on long term government bond yields and total credit to the general government on sovereign debt in core and periphery EU economies in separate panels employing the panel autoregressive distributive lag (ARDL) method for the period 2000:1–2020:4. In addition, robustness checks were carried out using panel econometric methods such as fully modified ordinary least squares (FMOLS), dynamic ordinary least squares (DOLS), and common correlated effects mean group (CCEMG). The analysis results revealed a long term cointegration nexus between the variables in both groups of countries. The findings also showed that interest rates on long term government bond yields and total credit to the general government positively influence sovereign debt in both groups of economies in the long run, yet the positive effect of total credit to the general government is stronger. Furthermore, the comparative analysis demonstrated that the long run positive coefficients of interest rates on long term government bond yields and total credit to the general government of the periphery EU economies are higher than those of the core EU economies. Ultimately, empirical results supported the existence of an asymmetric structure between core and periphery EU economies, contradicting the convergence approach during the post-EMU period. The findings of this study recommend that governments in the eurozone restrict their long-term credit usage and that less competitive countries should create their own liquid financial resources. As a result, this study proposes various policy solutions to eliminate competitiveness disparities in EU integration.

Keywords: The EMU sovereign debt crisis, core EU economies, periphery EU economies, competitiveness differences

JEL codes: F45, N14, N24

DOI: ...