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Currency and Competitiveness in Europe

Currency and Competitiveness in Europe

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

This book combines currency matters with competitiveness considerations, with a view to raising the understanding of exchange rate dynamics and to analysing the role of exchange rates in reinforcing economic competitiveness.

Chapter 21: Euro Area Enlargement: Lessons and Challenges

Servaas Deroose, Paul Kutos and Massimo Suardi

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


Servaas Deroose, Paul Kutos and Massimo Suardi1 The process of euro area enlargement is ongoing. Three of the 12 new EU member states (NMS) have already joined the single currency area, and others are set to follow in the foreseeable future. At the same time, some initial expectations about the timing of euro adoption have not been fulfilled, as the achievement of sustainable convergence has proved more difficult than expected. This chapter discusses some of the key challenges facing the NMS on their way to the euro and beyond. 21.1 STYLIZED FACTS ON THE NMS Most of the new member states are former transition economies that are still undergoing a ‘real convergence’ process vis-à-vis the euro area, that is, income levels and economic structures are becoming more aligned. Average GDP per capita (expressed in terms of purchasing power standards – PPS) is around 60 per cent of the euro area average, though this masks considerable differences within the group. A robust growth performance, based on successful macroeconomic stabilization strategies and comprehensive structural reform, has led to a narrowing of the income gap vis-à-vis the euro area by more than ten percentage points since the beginning of the 2000s (Figure 21.1). Major progress has thus already been made, accelerated by the EU accession process, but completing real convergence will remain a key task for many years to come. Among the many economic policies that will bear on this policy challenge, a powerful instrument in the EU tool...

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