Chapter 8: Unilateral adoption of the euro by EU applicant countries: the macroeconomic aspects
Andrzej Bratkowski and Jacek Rostowski INTRODUCTION Many commentators have noted the fact that the so-called ‘Eastern enlargement’ of the EU is unique, in the sense that never before have countries which are so much poorer than the EU been admitted. Furthermore, they are being admitted to an EU which is far more internally liberalized (the single market) and integrated (EMU) than previously. Finally, the applicant countries are far more liberalized internally and open internationally than was the case with the previous enlargement to relatively poor countries (the so-called ‘Southern enlargement’ of the 1980s). We believe that this unique combination of circumstances is likely to generate unanticipated problems for the applicant countries in their conduct of macroeconomic policy in the run-up to EU and later EMU accession,1 and the best solution to these problems, for those countries whose reserves are adequate, is rapid unilateral adoption of the euro before EU entry. The problems we predict stem from the combination at one time of the following factors: (i) expected rapid growth in the applicant countries (far faster than in the EU itself); (ii) real appreciation resulting from the well-known Harrod–Balassa–Samuelson effect; (iii) free capital movements; (iv) the need to satisfy the Maastricht criteria and join EMU within ten years. These factors are likely to lead to high current account deficits, which it will be difficult for the authorities to limit to prudent levels. At the core of our analysis lies an attempt to combine what we know about the...
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