Chapter 23: Trajectories towards the euro and the role of ERM II
Tommaso Padoa-Schioppa INTRODUCTION I would like to share some thoughts on the policy challenges faced by accession countries in the run-up to the adoption of the euro. Most accession countries have expressed their intention to adopt the euro as soon as possible after joining the EU. To this end, they have embarked on policies aimed at achieving both nominal and real convergence with the euro area. This is not a trivial task. It involves (i) advancing disinﬂation – or preserving the price stability achieved thus far; (ii) completing the process of transition; and (iii) enhancing the economies’ medium-term growth potential. In this context, the concepts of real and nominal convergence become crucial, which is why I will focus on them. After deﬁning the concepts, I will argue for the need to enhance the processes of real and nominal convergence with the euro area and provide a rationale for the simultaneous, or parallel, pursuit of both. I shall conclude by highlighting that ERM II ought to be regarded as a powerful framework for combining nominal and real convergence, and not as a mere ‘waiting-room’ prior to adoption of the euro. DEVELOPMENTS IN NOMINAL AND REAL CONVERGENCE Let me start by brieﬂy recalling the progress in nominal and real convergence that accession countries have made thus far. A signiﬁcant degree of nominal convergence has been achieved. Looking at the accession countries as a whole (Accessionland, for short) we see that inﬂation has been reduced from nearly 70 per...
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