The Euro

The Euro

Its Origins, Development and Prospects

Chris Mulhearn and Howard R. Vane

This important new book provides a non-technical, comprehensive overview of the central issues surrounding the euro. Following an introduction to the origins of European integration, the authors proceed to examine the first concrete steps in the process that led to the creation of the euro area. The book then explores the economics and architecture of the euro, highlights the issues surrounding enlargement, and reflects on the future of European monetary union. To help bring the subject matter alive, the book also contains interviews with leading academics in the field including Willem Buiter, Nick Crafts, Paul De Grauwe, Patrick Minford, Niels Thygesen, Andrzej Wojtyna and Charles Wyplosz.

Chapter 6: Euro-area Enlargement and the Accession Economies

Chris Mulhearn and Howard R. Vane

Subjects: economics and finance, financial economics and regulation, international economics, money and banking


INTRODUCTION In 2004 the 15-strong European Union (EU) admitted 10 new countries into membership: Cyprus and Malta, and from Central and Eastern Europe, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia. In 2007 Bulgaria and Romania also became EU members, forming an EU27. Presently, Croatia, the Former Yugoslav Republic of Macedonia, and Turkey are all candidate countries for EU membership (see Figure 6.1). The pool of potential euro-area members is clearly expanding. The purpose of the present chapter is to review the major issues underlying euro adoption for the EU accession economies. As discussed in Chapter 5, of the original EU15, three countries have not as yet joined the euro area. Denmark and the UK have negotiated opt-outs which allow them to delay euro adoption until a time of their choosing. Sweden, on the other hand, has a derogation from its obligation to join the euro area which will be – in euro-speak – abrogated (that is, rescinded) as soon as it fulfils the Maastricht criteria. However, Swedish public opinion is presently set against the euro and accordingly, although the Swedish economy has achieved a high degree of sustainable convergence with the euro area, the Swedish government has so far chosen not to participate in the exchange rate mechanism (ERM II). In the present circumstances it seems unlikely that Sweden, Denmark or the UK will adopt the euro anytime soon. This is decisively not the case for the accession economies, three of which – Slovenia, Cyprus and Malta – have...

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