The Baltic Challenge and Euro-Area Entry
AbstractResident Fellow Zsolt Darvas takes a look at the issue of the Baltic states - Estonia, Latvia and Lithuania - and the challenges facing those three countries in the aftermath of the financial crisis. He argues that because it is in the broader European interest to prevent a collapse in the Baltics, the best option is immediate euro entry at a suitable exchange rate supported by appropriate resolution in order to manage the resulting debt overhang. However, there seems to be no legal basis for this under the current euro accession criteria. Furthermore, the economic foundations of the criteria are fundamentally flawed, as euro-area members continue to violate the criteria while the EU's expansion to 27 members has made the criteria tougher for new member states to meet themselves. Ultimately, the European Council has the ability to reform the criteria without a formal treaty change. The Council should do so, the author argues, and allow for more meaningful benchmarks for all future euro-area applicants.
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Bibliographic InfoPaper provided by Bruegel in its series Policy Contributions with number 357.
Date of creation: Nov 2009
Date of revision:
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- Zsolt Darvas & Jean Pisani-Ferry, 2008. "Avoiding a new European divide," Policy Briefs 227, Bruegel.
- Valerie Cerra & Sweta Chaman Saxena, 2007.
"Growth dynamics: the myth of economic recovery,"
BIS Working Papers
226, Bank for International Settlements.
- Zsolt Darvas & Gyorgy Szapary, 2008.
"Euro Area Enlargement and Euro Adoption Strategies,"
IEHAS Discussion Papers
0824, Institute of Economics, Hungarian Academy of Sciences.
- Zsolt Darvas & György Szapáry, 2008. "Euro Area Enlargement and Euro Adoption Strategies," Working Papers 0801, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
- Zsolt Darvas & Gy�rgy Szap�ry, 2008. "Euro Area Enlargement and Euro Adoption Strategies," European Economy - Economic Papers 304, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
- International Monetary Fund, 2005.
"New Rates from New Weights,"
IMF Working Papers
05/99, International Monetary Fund.
- Zsolt Darvas, 2009. "The EU's Role in Supporting Crisis-Hit Countries in Central and Eastern Europe," Policy Contributions 368, Bruegel.
- Zsolt Darvas, 2010.
"The Case for Reforming Euro Area Entry Criteria,"
1003, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
- Zsolt Darvas, 2011. "Exchange Rate Policy and Economic Growth after the Financial Crisis in Central and Eastern Europe," Working Papers 1103, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
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