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Structural Challenges for Europe

Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner

The main thrust of the book is that the sharing of mutual experiences is important for generating an acceptable policy mix, both at EU and national levels. The contributors highlight key financial issues, including the role of FDI and of foreign banks in the still ‘under-banked’ acceding countries, the re-launch of social security systems and the fiscal challenges of financing the catch-up process. They also examine the ongoing EU debate surrounding the application of the Stability and Growth Pact in Central and Eastern European Countries (CEECs) and go on to explore the contrasting evidence that some CEECs have shown more extensive privatisation efforts than some EU countries.
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Chapter 23: Trajectories towards the euro and the role of ERM II

Tommaso Padoa-Schioppa


Tommaso Padoa-Schioppa INTRODUCTION I would like to share some thoughts on the policy challenges faced by accession countries in the run-up to the adoption of the euro. Most accession countries have expressed their intention to adopt the euro as soon as possible after joining the EU. To this end, they have embarked on policies aimed at achieving both nominal and real convergence with the euro area. This is not a trivial task. It involves (i) advancing disinflation – or preserving the price stability achieved thus far; (ii) completing the process of transition; and (iii) enhancing the economies’ medium-term growth potential. In this context, the concepts of real and nominal convergence become crucial, which is why I will focus on them. After defining the concepts, I will argue for the need to enhance the processes of real and nominal convergence with the euro area and provide a rationale for the simultaneous, or parallel, pursuit of both. I shall conclude by highlighting that ERM II ought to be regarded as a powerful framework for combining nominal and real convergence, and not as a mere ‘waiting-room’ prior to adoption of the euro. DEVELOPMENTS IN NOMINAL AND REAL CONVERGENCE Let me start by briefly recalling the progress in nominal and real convergence that accession countries have made thus far. A significant degree of nominal convergence has been achieved. Looking at the accession countries as a whole (Accessionland, for short) we see that inflation has been reduced from nearly 70 per...

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