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Economic Convergence and Divergence in Europe

Economic Convergence and Divergence in Europe

Growth and Regional Development in an Enlarged European Union

Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner

This highly topical book addresses the challenge of economic convergence within Europe, beginning with a thorough review of the theory of growth and related empirical research. Historical and more recent economic developments within the present EU and current accession countries are discussed, along with the design for the process of further integration of accession countries into the EU and the Euro area. Moreover, the potential to achieve a sustainable catch-up process in Western Balkan countries, the Ukraine and Russia is explored, focusing on the task facing the EU in designing proper policies vis-à-vis these countries. The contributors’ varied perspectives ensure that the theories and policies postulated are linked closely with the actual situation in accession countries and offer up-to-date insights.

Chapter 16: The costs and benefits of an early EMU participation for Hungary

István Hamecz and Ágnes Horváth

Subjects: economics and finance, regional economics, urban and regional studies, regional economics


16. The costs and benefits of an early EMU participation for Hungary István Hamecz and Ágnes Horváth 16.1. INTRODUCTION The main economic policy challenge for applicant countries is to find the optimal policy mix which ensures steady and rapid catching up while maintaining nominal stability during the convergence process. Although the uncertainty surrounding the exact time frame of accession makes it difficult to fine-tune economic policy, Hungary has a clear-cut medium-term strategy. Moreover, its main economic policy goal, namely maintaining the conditions for macroeconomic stability and sustained growth, coincides with EMU entry requirements. At the present stage of Hungarian economic development, and given an economic policy aimed to further convergence, the fulfilment of the Copenhagen criteria would not cause any noticeable problem for the economy. When Greece, Portugal and Spain were at the same distance from EMU membership as Hungary currently is, they showed similar, in some cases even larger, deviations in terms of both nominal and real criteria. The high degree of economic interdependence between Hungary and the euro area suggests that the criteria required by the optimal currency area (OCA) theory have already been largely met as well. Although establishing the required degree of monetary stability may involve trade-offs in the short run, these would also be present without the prospect of EMU participation. Moreover, in the case of Hungary long-term gains will more than compensate for the short-term cost of disinflation. Based on a careful cost–benefit analysis we...

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