Table of Contents

The Economic Potential of a Larger Europe

The Economic Potential of a Larger Europe

Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald

The Economic Potential of a Larger Europe gives insights into past, present and future issues related to the ongoing EU enlargement process. Providing a unique forum for debate and a multiplicity of views and experiences from both high-profile academics and those who engage with enlargement on an implementation level, this book covers a wide range of topics that are key to a successful transition and integration process and thus to the provision of a prosperous growth environment within a larger Europe. Special attention is paid to monetary integration, notably entry into ERM II, on which representatives of the national central banks involved present their views.

Chapter 21: Fiscal convergence before entering EMU

Luca Onorante


Luca Onorante* 1. INTRODUCTION The monetary integration of the acceding countries will proceed in several distinct steps, starting with membership in the European Union (EU), followed by participation in the so-called Exchange Rate Mechanism (ERM) II and ultimately entry into the euro area. Already the first step, accession, implies full acceptance of the actual and potential rights and obligations that constitute the third stage of EMU, as well as its institutional framework. The new member states will have to consider their economic policies as a matter of common concern, avoid excessive government deficits and adhere to the relevant provisions of the Stability and Growth Pact. The new member states will have to be committed to the medium-term budgetary objective of close-to-balance or in-surplus positions and to meeting the objectives of their convergence programmes. Their budgetary policy and outcomes will become subject to the Excessive Deficit Procedure and to the non-sanctioning parts of the Stability and Growth Pact. As far as fiscal policies are concerned, these commitments imply that further progress needs to be made before the new member states can apply to enter the euro area. In 2002, only the Baltic countries and Slovenia had a deficit ratio below the Treaty reference value of 3 per cent of GDP. The other countries recorded deficit ratios as high as 9.2 per cent of GDP.1 Yet the process of reduction of public deficits seems to have stopped. The public deficits in most acceding countries have recently...

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