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Twentieth Anniversary of the Euro: Why are Some Countries Still Not Willing to Join? Economists’ View

Author

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  • Milan Deskar-Škrbić

    (Croatian National Bank)

  • Davor Kunovac

    (Croatian National Bank)

Abstract

Twenty years after the introduction of the euro, some European countries are still not willing to join the monetary union. Sweden, Czechia, Hungary, and Poland, although obliged to introduce the euro, decided to postpone this process indefinitely. There are various economic, political, legal, sociological, and even emotional factors underlying such a decision. In this paper, we focus on the key economic argument against euro adoption in these countries—the cost of the loss of monetary policy independence. Our results indicate that there already is a high correlation and synchronicity in key interest rates and business cycles between the euro area and non-euro area European countries. Most importantly, our analysis also suggests that business cycles in both groups of countries are predominately driven by the same (common) shocks. Following the postulates of the OCA theory, we therefore provide evidence supporting the view that the common monetary policy in these countries would, most likely, be an adequate substitute for national countercyclical policies.

Suggested Citation

  • Milan Deskar-Škrbić & Davor Kunovac, 2020. "Twentieth Anniversary of the Euro: Why are Some Countries Still Not Willing to Join? Economists’ View," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(2), pages 242-262, June.
  • Handle: RePEc:pal:compes:v:62:y:2020:i:2:d:10.1057_s41294-020-00115-2
    DOI: 10.1057/s41294-020-00115-2
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    Cited by:

    1. Jakub Borowski & Adam Czerniak & Beáta Farkas, 2023. "Diverse Models of Capitalism and Synchronization of Business Cycles," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 65(4), pages 681-712, December.
    2. Milan Deskar-Škrbiæ & Antonija Buljan & Mirna Dumèiæ, 2020. "Real interest rate convergence and monetary policy independence in CEE countries," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 349-380.
    3. Deskar-Škrbić, Milan & Kotarac, Karlo & Kunovac, Davor, 2020. "The third round of euro area enlargement: Are the candidates ready?," Journal of International Money and Finance, Elsevier, vol. 107(C).
    4. Ozana Nadoveza Jelić & Rafael Ravnik, 2021. "Introducing Policy Analysis Croatian MAcroecoNometric Model (PACMAN)," Surveys 41, The Croatian National Bank, Croatia.
    5. Kunovac, Davor & Palenzuela, Diego Rodriguez & Sun, Yiqiao, 2022. "A new optimum currency area index for the euro area," Working Paper Series 2730, European Central Bank.

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    More about this item

    Keywords

    Euro area enlargement; Economic shocks; BSVAR; Common monetary policy; Mundellian trilemma;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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