Macroeconomic Policies for EU Accession

Macroeconomic Policies for EU Accession

Edited by Erdem Başçı, Sübidey Togan and Jürgen von Hagen

What macroeconomic requirements must Turkey meet in its quest to accede to the European Union? This book, with its distinguished contributors – well-known economists and policymakers – examines and analyses these macroeconomic challenges confronting Turkey. Although the focus is on the specific situation of Turkey, the lessons are informative for other candidate countries and the findings directly relevant to the process of European integration.

Comments

Ali M. Kutan

Subjects: economics and finance, financial economics and regulation

Extract

Ali M. Kutan Orlowski reviews Poland’s monetary and fiscal policy since the beginning of reforms initiated in early 1990s. He covers macroeconomic stabilization policies and policy strategies for adopting the euro, which is officially planned for 2009, with a particular emphasis on the current inflation targeting regime. The chapter includes useful lessons for other transition economies, as well as those that are currently in the process of negotiations for full European Union (EU) membership, such as Turkey and Bulgaria. The key conclusions and recommendations of the paper can be summarized as follows: (1) (2) Disciplined and effective coordination of monetary and fiscal policies are critical for Poland’s timely adoption of the euro. Polish fiscal authorities face many challenges, including tax reforms, reducing the amount of future social transfers and public administration expenses, and pressures on the budget associated with an ageing population. Without fiscal discipline and sustainability, it would be hard to tackle these challenges effectively. In terms of monetary policy, the existing direct inflation targeting regime needs to be relaxed by allowing a reduction in the exchange rate risk premium within the Exchange Rate Mechanism (ERM) II through foreign exchange market interventions. A relative inflation forecast targeting policy that is based on adjusting the differential between domestic and euro zone interest rates should instead be adopted. However, the central bank’s main goal should still be low inflation. A stable political environment, such as single-party government, fight against corruption, and a minimum...

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