The Baltic Challenge and Euro-Area Entry
Resident 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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- Zsolt Darvas, 2009. "The EU's Role in Supporting Crisis-Hit Countries in Central and Eastern Europe," Policy Contributions 368, Bruegel.
- Sweta Chaman Saxena & Valerie Cerra, 2005.
"Growth Dynamics; The Myth of Economic Recovery,"
IMF Working Papers
05/147, International Monetary Fund.
- Tamim Bayoumi & Jaewoo Lee & Sarma Jayanthi, 2006.
"New Rates from New Weights,"
IMF Staff Papers,
Palgrave Macmillan, vol. 53(2), pages 4-4.
- Zsolt Darvas & Jean Pisani-Ferry, 2008. "Avoiding a new European divide," Policy Briefs 227, Bruegel.
- Zsolt Darvas & György Szapáry, 2008.
"Euro Area Enlargement and Euro Adoption Strategies,"
0801, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
- 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.
- Zsolt Darvas & Gyorgy Szapary, 2008. "Euro Area Enlargement and Euro Adoption Strategies," IEHAS Discussion Papers 0824, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
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