IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/4500.html
   My bibliography  Save this paper

Hansa vs Habsburg: Debt, Deficits and the Entry of Accession Countries into the Euro

Author

Listed:
  • Hughes Hallett, Andrew
  • Lewis, John

Abstract

Price and output level convergence between new member states and the existing EU necessarily implies inflation and growth divergence for many years to come. That complicates the conditions for accession to the euro. In this Paper, we focus on debt dynamics for the eight new member states from Central and Eastern Europe. We find that the nominal Maastricht criteria are at best irrelevant, and at worst damaging for the duration of the catch-up process and well past any plausible test date for euro area entry. There are strong indirect effects of nominal criteria, however, which make it harder to achieve the fiscal criteria. Our results suggest all countries would find it harder to restrain debt growth within the euro, but that the magnitude of this effect varies substantially across countries, as do the debt dynamics outside the euro. If nominal criteria are suspended, the policy instruments required to achieve euro convergence are in the hands of the individual states and are affected by external policies only to the extent that there are growth, inflation or monetary spillovers from the euro area. This suggests that the principle of subsidiarity could be applied to euro membership, placing decisions over entry in the hands of individual member states.

Suggested Citation

  • Hughes Hallett, Andrew & Lewis, John, 2004. "Hansa vs Habsburg: Debt, Deficits and the Entry of Accession Countries into the Euro," CEPR Discussion Papers 4500, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4500
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4500
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bas Aarle & Harry Garretsen & Cindy Moons, 2008. "Accession to the euro-area: a stylized analysis using a NK model," International Economics and Economic Policy, Springer, vol. 5(1), pages 5-24, July.
    2. Rasmus Kattai & John Lewis, 2004. "Hooverism, hyperstabilisation or halfway-house? describing fiscal policy in Estonia 1996-2003," Bank of Estonia Working Papers 2004-04, Bank of Estonia, revised 10 Oct 2004.
    3. Hughes Hallett, Andrew & Lewis, John, 2007. "Debt, deficits, and the accession of the new member States to the Euro," European Journal of Political Economy, Elsevier, vol. 23(2), pages 316-337, June.
    4. Mariusz Jarmuzek, 2005. "Are the EU new member states fiscally sustainable? An empirical analysis," UCL SSEES Economics and Business working paper series 51, UCL School of Slavonic and East European Studies (SSEES).
    5. Bohn, Frank, 2006. "Maastricht Criteria versus Stability Pact," Journal of Policy Modeling, Elsevier, vol. 28(3), pages 247-276, April.

    More about this item

    Keywords

    convergence; debt; fiscal policy; monetary union; subsidarity;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • P27 - Economic Systems - - Socialist Systems and Transition Economies - - - Performance and Prospects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4500. 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: (). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.