The Euro: A "MUST" for small European states?
This paper deals with the question of what impact membership of the European Monetary Union (EMU) has had on small European states. We will also analyze whether or to what extent a large number of small member states affect the EMU itself when they vastly outnumber the large countries. We conclude that the small countries in the European Union are far from creating a homogeneous group. They differ in the length of EU membership, income per capita, membership and non-membership of the EMU, production structure, foreign trade policy, and stability readiness. However, they do share some characteristics, particularly their relatively high openness, through which domestic macroeconomic variables are easily influenced by external shocks. The welfare gains of a small country joining the eurozone depend on the extent to which the benefits (if existent) of higher financial credibility outweigh the loss of autonomous monetary policy. Finally, with regard to their significance in the EMU, in no case should cutbacks be made for small countries concerning the stability requirements.
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