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The case for reforming euro area entry criteria

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  • Zsolt Darvas

    (Corvinus University of Budapest, Budapest, Hungary
    Bruegel, Belgium
    Institute of Economics of the Hungarian Academy of Sciences, Budapest, Hungary)

Abstract

The global economic and financial crisis has raised further concerns about the euro-entry criteria, in addition to other factors, such as the effective tightening of the criteria due to the enlargement of the EU from 12 to 27 members, the highly unfavourable property of business cycle dependence, the internal inconsistency of the criteria due to the structural price level convergence of Central and Eastern European countries, and the continuous violation of the criteria by euro-area members. The interest rate criterion became a highly volatile measure. Many US metropolitan areas would fail to qualify to be members of the US monetary union by applying the currently used inflation criterion to the US. It is time to reform the criteria and to strengthen their economic rationale within the legal framework of the EU treaty. A good solution would be to relate all numerical criteria to the average of the euro area and simultaneously to extend the compliance period from the currently considered one year to a longer period.

Suggested Citation

  • Zsolt Darvas, 2010. "The case for reforming euro area entry criteria," Society and Economy, Akadémiai Kiadó, Hungary, vol. 32(2), pages 195-219, December.
  • Handle: RePEc:aka:soceco:v:32:y:2010:i:2:p:195-219
    Note: This article partly draws on the paper that the author prepared for the conference on “The Future of the Baltic Sea Region in Europe”, held on 27–28 August 2009 in Hamina, Finland. The conference was organised by Centrum Balticum and the Town of Hamina together with the Finnish Prime Minister’s Office to commemorate the 200th anniversary of the Treaty of Hamina that established the autonomous Grand Duchy of Finland within Imperial Russia, which marked the gradual emergence of Finnish nationhood. The author is grateful to Torbjörn Becker, Daumantas Lapinskas, Jean Pisani-Ferry, Indhira Santos, André Sapir, Karsten Staehr, György Szapáry, Vilija Tauraitë, Jakob von Weizsäcker and two lawyers who wished to stay in anonymity for stimulating discussions about this paper, to the conference participants in Hamina and to the seminar participants at the German Marshall Fund in Berlin for helpful comments. However, ###
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    References listed on IDEAS

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    1. Zsolt Darvas & Jean Pisani-Ferry, 2008. "Avoiding a new European divide," Policy Briefs 227, Bruegel.
    2. John Lewis & Karsten Staehr, 2010. "The Maastricht Inflation Criterion: What is the Effect of European Union Enlargement?," Journal of Common Market Studies, Wiley Blackwell, vol. 48(3), pages 687-708, June.
    3. Zsolt Darvas & György Szapáry, 2008. "Euro Area Enlargement and Euro Adoption Strategies," European Economy - Economic Papers 2008 - 2015 304, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    4. Jean Pisani-Ferry & Pavle Petrovic & Michael A Landesmann & Vladimir Gligorov & Daniel Daianu & Torbjörn Becker & Zsolt Darvas & André Sapir & Beatrice Weder di Mauro, . "Whither growth in central and eastern Europe? Policy lessons for an integrated Europe," Blueprints, Bruegel, number 453, December.
    5. Darvas, Zsolt, 2009. "Leveraged carry trade portfolios," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 944-957, May.
    6. Zsolt Darvas & Zoltan Schepp, 2009. "Long maturity forward rates of major currencies are stationary," Applied Economics Letters, Taylor & Francis Journals, vol. 16(11), pages 1175-1181.
    7. Zsolt Darvas & Andrew K. Rose & Gyorgy Szapary, 2005. "Fiscal Divergence and Business Cycle Synchronization: Irresponsibility is Idiosyncratic," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005, pages 261-298, National Bureau of Economic Research, Inc.
    8. Zsolt Darvas & György Szapáry, 2008. "Business Cycle Synchronization in the Enlarged EU," Open Economies Review, Springer, vol. 19(1), pages 1-19, February.
    9. Zsolt Darvas, 2009. "The Baltic Challenge and Euro-Area Entry," Policy Contributions 357, Bruegel.
    10. Zsolt Darvas, 2008. "Estimation Bias and Inference in Overlapping Autoregressions: Implications for the Target‐Zone Literature," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(1), pages 1-22, February.
    11. John Lewis & Karsten Staehr, 2010. "The Maastricht Inflation Criterion: What is the Effect of European Union Enlargement?," Journal of Common Market Studies, Wiley Blackwell, vol. 48(3), pages 687-708, June.
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    Cited by:

    1. 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.
    2. Zsombor Z. Méder & András Simonovits & János Vinczeb, 2012. "Tax Morale and Tax Evasion: Social Preferences and Bounded Rationality," Economic Analysis and Policy, Elsevier, vol. 42(2), pages 171-188, September.
    3. Zaenal Mutaqin & Masaru Ichihashi, 2013. "Widening and Deepening Economic Integration Impact on Bilateral Trade in the Eurozone and ASEAN," IDEC DP2 Series 3-3, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).
    4. Avadanei, Andreea, 2011. "O abodare de ansamblu privind provocările adoptării euro: cazul României [An overview of euro adoption challenges: the case of Romania]," MPRA Paper 28420, University Library of Munich, Germany.
    5. Torój, Andrzej & Bednarek, Elżbieta & Bęza-Bojanowska, Joanna & Osińska, Joanna & Waćko, Katarzyna & Witkowski, Dariusz, 2012. "EMU: the (post-)crisis perspective. Literature survey and implications for the euro-candidates," MF Working Papers 12, Ministry of Finance in Poland, revised 06 Mar 2012.
    6. MIHUT Ioana Sorina & LUTAS Mihaela, 2014. "The Impact Of The Recent Financial Crisis Upon The Nominal Convergence Indicators Across New Eu Member States," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 66(2), pages 58-74.
    7. Zsolt Darvas, 2012. "The euro crisis- ten roots, but fewer solutions," Policy Contributions 755, Bruegel.
    8. Triandafil, Cristina Maria, 2011. "The Analysis Of The Convergence Criteria. Empirical Perspective In The Context Of The Sustainable Character Highlight," Working Papers of National Institute for Economic Research 111205, Institutul National de Cercetari Economice (INCE).
    9. Dumitriu, Ramona & Stefanescu, Razvan, 2013. "Provocările politicii monetare [Monetary policy challenges]," MPRA Paper 50261, University Library of Munich, Germany, revised 28 Sep 2013.
    10. Roxana Badircea & Alina Manta & Alia Duta, 2016. "The Analysis of the Real Convergence of the Countries from Central and Eastern Europe," Finante - provocarile viitorului (Finance - Challenges of the Future), University of Craiova, Faculty of Economics and Business Administration, vol. 1(18), pages 45-50, December.

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    More about this item

    Keywords

    Euro; EU institutions; financial crisis; Maastricht-criteria;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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