To Purgatory and Beyond: When and How Should the Accession Countries from Central and Eastern Europe Become Full Members of EMU?
The Paper discusses how the EU accession countries should pursue full membership in the EMU: adopt the euro. The key messages are the following: 1) Even the largest of the accession countries is too small, too open and too vulnerable to speculative attacks to be a viable optimal currency area. 2) Achieving fiscal sustainability is a necessary condition for full EMU membership. It should also be sufficient. 3) Convergence, prior to the adoption of the euro, of an EMU candidate’s inflation rate to its euro area equilibrium inflation rate is helpful but not essential. 4) Real convergence is irrelevant for EMU membership. 5) Participation in ERMII is at best unhelpful. At worst it creates unnecessary risks of financial and macroeconomic instability. 6) The Maastricht criteria for EMU membership include the simultaneous achievement of three nominal objectives: (a) a nominal exchange rate target (to stay, for at least two years, within a ± 15% nominal exchange rate band centered on a fixed parity with the euro); (b) a short-term inflation target (inflation, for at least one year, to be no more than 1.5% above the average inflation rate of the three EU Members States with the lowest inflation rates); and (c) a target for a long-term (ten year) nominal interest rate (that rate not to be more than 2% above the average of the three EU Members States with the lowest inflation rates, for at least one year). This is two nominal targets too many. It overburdens the monetary authority and confuses the markets. 7) The two-year ERMII participation requirement should be dropped. Instead, upon achieving fiscal sustainability (and preferably also inflation convergence), the EMU candidate should be given a firm date and (exchange) rate for full EMU membership. This will provide a necessary focal point for the markets and will permit the smooth approach of the market exchange rate to the irrevocable conversion rate with the euro. It should be possible to move into full EMU membership directly from an unrestricted float. 8) Unilateral euroization, in the sense of the adoption of the euro as a parallel currency and joint legal tender alongside the domestic currency, is not inconsistent with the Treaty, if it does not involve the abolition of the national currency and the unilateral determination of the ultimate conversion rate of the domestic currency and the euro. In addition, it should be possible for the new EU members to negotiate consensual euroization (this could include the immediate disappearance of the domestic currency).
If you experience problems downloading a file, check if you have the proper application to view it first. 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.
|Date of creation:||Apr 2004|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4342. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct email address
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.