Price and output level convergence between new member states and the existing EU necessarily implies inflation and growth divergence for many years to come. That complicates the conditions for accession to the euro. In this Paper, we focus on debt dynamics for the eight new member states from Central and Eastern Europe. We find that the nominal Maastricht criteria are at best irrelevant, and at worst damaging for the duration of the catch-up process and well past any plausible test date for euro area entry. There are strong indirect effects of nominal criteria, however, which make it harder to achieve the fiscal criteria. Our results suggest all countries would find it harder to restrain debt growth within the euro, but that the magnitude of this effect varies substantially across countries, as do the debt dynamics outside the euro. If nominal criteria are suspended, the policy instruments required to achieve euro convergence are in the hands of the individual states and are affected by external policies only to the extent that there are growth, inflation or monetary spillovers from the euro area. This suggests that the principle of subsidiarity could be applied to euro membership, placing decisions over entry in the hands of individual member states.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
4500.
Find related papers by JEL classification: E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management P27 - Economic Systems - - Socialist Systems and Transition Economies - - - Performance and Prospects
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)