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The Baltic Challenge and Euro-Area Entry


  • Zsolt Darvas


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 Baltic Challenge and Euro-Area Entry," Policy Contributions 357, Bruegel.
  • Handle: RePEc:bre:polcon:357

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    References listed on IDEAS

    1. Valerie Cerra & Sweta Chaman Saxena, 2008. "Growth Dynamics: The Myth of Economic Recovery," American Economic Review, American Economic Association, vol. 98(1), pages 439-457, March.
    2. Tamim Bayoumi & Jaewoo Lee & Sarma Jayanthi, 2006. "New Rates from New Weights," IMF Staff Papers, Palgrave Macmillan, vol. 53(2), pages 1-4.
    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. Zsolt Darvas & Jean Pisani-Ferry, 2008. "Avoiding a new European divide," Policy Briefs 227, Bruegel.
    5. Zsolt Darvas, 2009. "The EU's Role in Supporting Crisis-Hit Countries in Central and Eastern Europe," Policy Contributions 368, Bruegel.
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    Cited by:

    1. Zsolt Darvas, 2010. "The case for reforming euro area entry criteria," Society and Economy, Akadémiai Kiadó, Hungary, vol. 32(2), pages 195-219, December.
    2. 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.
    3. Wrobel, Ralph, 2015. "From independence to the Euro introduction: varieties of capitalism in the Baltic States," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 9-38.

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