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.

Chapter 7: Preconditions for a Successful Euro Adoption

Paul De Grauwe

Subjects: economics and finance, financial economics and regulation


Paul De Grauwe* 7.1 INTRODUCTION The conditions for successful entry into a monetary union have been hotly debated by economists. In order to clarify the issues, it is useful to make a distinction between long-run and short-run success. Success in the long run can be defined as membership in the monetary union that is sustainable in the long run. This is a situation in which the member countries consider the benefits of the union to outweigh their costs so that there are no incentives to leave the union. In a way it can be said that the equilibrium reached by the member countries is a Nash equilibrium. Success in the short run relates to the success that prospective countries have in mastering the obstacles that have been erected by the present members of the union. For example, the Treaty of Maastricht has specified a series of conditions that prospective members have to satisfy in order to be allowed into the union. As will be argued later, these conditions have little to do with long-run success. They can be considered as a rite of passage for new members before they enter the monetary club. 7.2 CONDITIONS FOR LONG-RUN SUCCESS The conditions for the long-run success of entry into a monetary union were first analysed by Mundell in his celebrated article introducing the concept of optimal currency areas (Mundell, 1961). These are the conditions which determine whether a country will be in a position where the benefits of...

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