Boosting European Competitiveness
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Boosting European Competitiveness

The Role of CESEE Countries

Edited by Marek Belka, Ewald Nowotny, Pawel Samecki and Doris Ritzberger-Grünwald

In the global financial crisis, competitiveness gaps between Euro area countries caused additional strain. This book discusses the various dimensions of competitiveness, with a special focus on Central, Eastern and Southeastern Europe. With products becoming ever more technically sophisticated and global interconnectedness on a relentless rise, quality, customer orientation and participation in production networks are as important as relative costs and prices. For Europe to proceed with convergence and to resist global competitive pressures, policies to boost productivity and innovation are therefore vital.
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Chapter 9: EU structural policies and euro adoption in CEE countries

Anna Kosior and Michał Rubaszek


A country faced with a possibility of adopting the euro faces a decision problem: it must assess domestic strengths and weaknesses against the threats and challenges posed by the euro zone’s structural and institutional features. This framing of the decision-making problem can be directly derived from the optimum currency area theory proposed by Mundell (1961), according to which entering the euro area creates an opportunity of accelerated growth through more trade and investment, and it also poses a threat of increased macroeconomic volatility arising from the loss of monetary independence. This theory argues that the success of euro adoption thus depends on two factors. First, on discrepancies between the country adopting the euro and the common currency area in terms of development level, economic structure and institutions governing the functioning of the economy. Second, on the existence and workings of mechanisms, both on a country and the euro area level, which could diminish risks related to limited domestic policy space following euro adoption. This multi-factor decision-making problem is further complicated by the fact that it has many moving parts, given that the structures of the euro area and the potential candidate economies are evolving over time, as are their institutional underpinnings. Below we apply the above decision-making problem to the Central Eastern European countries (CEEC) that remain outside the euro zone, with the aim of identifying the role played by the European Union (EU) and national structural policies in the process of fostering convergence and preparing for euro adoption. Section 9.1 focuses on the implications of the euro area’s current institutional design for the balance of risks related to euro adoption. In particular, we discuss to what extent this balance has changed with the progress made in terms of euro area institutional reforms since the financial crisis of 2008 and its aftermath. Section 9.2 investigates whether the fundamentals of the CEE economies are strong enough to participate in the ‘competition between countries’ fostered by the current institutional framework of the euro area. Section 9.3 discusses what kind of policies would make adopting the euro more attractive for the CEEC that are still outside the euro area. Section 9.4 concludes.

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