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When Should the Central Europeans Join EMU?

Author

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  • Jacek Rostowski

Abstract

The paper first considers why central European countries wish to join EMU soon. The main reasons are the risk of macroeconomic instability they face outside the euro zone if they wish to grow quickly. At the same time, Central Europe is highly integrated as regards trade with EMU, so it is little exposed to asymmetric shocks that would require a realignment of exchange rates. Finally, it is argued that there is no cost in terms of slower growth from EMU accession, so that there is no trade-off, as has been claimed, between nominal convergence to EMU and real convergence to EU average GDP levels. Second, the paper assesses whether Central European accession to EMU would be disadvantageous to current members. It concludes that accession cannot increase inflationary pressure on existing EMU members, as has been claimed, but that slow growing members of EMU might suffer increased unemployment, unless they increase the flexibility of their labour markets. Incumbent members may also be unwilling to share power with Central Europeans in EMU institutions.

Suggested Citation

  • Jacek Rostowski, 2003. "When Should the Central Europeans Join EMU?," CASE Network Studies and Analyses 0253, CASE-Center for Social and Economic Research.
  • Handle: RePEc:sec:cnstan:0253
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    File URL: http://www.case-research.eu/upload/publikacja_plik/1490434_253.pdf
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    References listed on IDEAS

    as
    1. Maurizio Michael Habib, 2002. "Financial contagion, interest rates and the role of the exchange rate as shock absorber in Central and Eastern Europe," International Finance 0209004, EconWPA.
    2. Anne Sulling, 2002. "Should Estonia euroize?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(2), pages 469-490, July.
    3. Habib, Maurizio Michael, 2002. "Financial contagion, interest rates and the role of the exchange rate as shock absorber in Central and Eastern Europe," BOFIT Discussion Papers 7/2002, Bank of Finland, Institute for Economies in Transition.
    4. Boone, Laurence & Maurel, Mathilde, 1999. "An Optimal Currency Area Perspective of the EU Enlargement to the CEECs," CEPR Discussion Papers 2119, C.E.P.R. Discussion Papers.
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