Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 20: Fiscal discipline and the adoption of the euro for new members of the European Union
Fabrizio Coricelli1 1. INTRODUCTION Although achieving macroeconomic stability was not a requirement for EU entry, the candidate countries (CEECs from now on) have made remarkable progress in this ﬁeld on the path to accession, as eﬀectively summarized by the convergence of inﬂation rates to EU levels (see Figure 20.1). However, in the run-up to EU entry some clear inconsistencies have become evident in the policy frameworks followed by several candidate countries. Speciﬁcally, budget deﬁcits soared as ﬁscal policies were loosened in several CEECs (see Table 20.1). At the same time, there is an increasingly favourable attitude towards postponing the adoption of the euro. The timing of euro area entry and ﬁscal discipline are related, as there is a widespread perception that a later Figure 20.1 Convergence in inﬂation rates 233 234 Stabilization of expectations Table 20.1 Consolidated general government balance (in % of GDP) 2001 2002 Ϫ0.65 Ϫ4.80 Ϫ6.74 1.19 Ϫ9.19 Ϫ2.70 Ϫ1.19 Ϫ6.70 Ϫ2.70 Ϫ7.20 Ϫ3.21 Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Slovak Republic Slovenia Source: EBRD. Ϫ0.86 Ϫ6.80 Ϫ5.11 0.68 Ϫ4.70 Ϫ1.95 Ϫ1.96 Ϫ5.50 Ϫ3.50 Ϫ7.30 Ϫ1.14 entry into the euro area will result in fewer restraints being put on ﬁscal policy. Furthermore, EU institutions, such as the European Central Bank and the European Commission, in fact seem to support the view that CEECs would be better oﬀ postponing entry in the euro area and not focusing too much on ﬁscal restraints. This view seems to imply that nominal...
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