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New Risks Ahead:The Eastward Enlargement of the Eurozone

Author

Listed:
  • Michael Bolle

    (Jean Monnet Centre of Excellence, Freie Universitaet Berlin)

  • Christian Fahrholz

    (Jean Monnet Centre of Excellence, Freie Universitaet Berlin)

  • Hanns-D. Jacobsen

    (Jean Monnet Centre of Excellence, Freie Universitaet Berlin)

  • Thomas Meyer

    (Jean Monnet Centre of Excellence, Freie Universitaet Berlin)

Abstract

Eastward enlargement is one of the hot topics in European economics. The accession of central and eastern European Countries (CEEC) into the European Union (EU) is accompanied by an extension of the eurozone to this region. This paper surveys likely outcomes and challenges of this specific feature of EU enlargement. Moreover, the ar-ticle represents the start of an international research project dealing with these ques-tions. Research is structured along different markets. Hence, the impact of an adoption of the euro is analysed for capital and labour markets as well as with respect to exchange rate and monetary policies. Our main position is that the euro has in general beneficiary ef-fects for the CEEC and the current EU in all examined markets. However, these bene-fits evolve mainly in the long run, whereas the short-term costs of adaptation to the new situation may be high. Although we believe that the present value of long-term benefits exceeds these costs, it is by no means clear that policy-makers will share this view. Due to the usual political-economy transformation, the assessment of costs and benefits may be different for politicians than compared to any overall perspective. If of-ficial policies become unforeseeable, so will private behaviour. International investors may reverse their capital flows, draining precious liquidity, and leading to currency and financial crises whenever they perceive the authorities’ commitment to EMU less credi-ble. This article highlights some thinkable mechanisms how any such crisis could evolve. It, thus, sets the agenda for further research, mainly, with the focus on appropriate policy strategies to keep adaptation costs as low as possible, minimise other external risks, without hampering the long-term benefits.

Suggested Citation

  • Michael Bolle & Christian Fahrholz & Hanns-D. Jacobsen & Thomas Meyer, 2001. "New Risks Ahead:The Eastward Enlargement of the Eurozone," Eastward Enlargement of the Euro-zone Working Papers wp01, Free University Berlin, Jean Monnet Centre of Excellence, revised 01 Aug 2001.
  • Handle: RePEc:ezo:ezppap:wp01
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    Cited by:

    1. Michael Bolle & José Caétano & Jaakko Kiander & Vladimir Lavrac & Renzo Orsi & Tiiu Paas & Katarzyna Zukrowska, 2002. "The Eastward Enlargement of the Eurozone - State of the Art Report," Eastward Enlargement of the Euro-zone Working Papers wp02, Free University Berlin, Jean Monnet Centre of Excellence, revised 01 Jan 2002.

    More about this item

    Keywords

    EMU; EU enlargement; monetary integration;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G3 - Financial Economics - - Corporate Finance and Governance

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