Assessment of the Euro\'s implications for European economic development

Iikka Korhonen and Mare Randveer ()

No 2000-2, Bank of Estonia Working Papers from Bank of Estonia

Abstract: This paper assesses the impacts of Economic and Monetary Union and the euro on developments within the EU and globally. The emphasis is on euro-11 countries and the eight most advanced accession candidates in Central and Eastern Europe. The single currency completes the project for a single market in Europe, and overall, clear efficiency gains for participating countries are expected. Low, stable interest rates should spur investment and the single currency should promote the formation of large, liquid capital markets, eventually transforming the structure of financial intermediation within the euro area. Although participating countries achieved a high degree of nominal convergence in the 1990s, this process now appears to have ended. Moreover, the conduct of a common monetary policy becomes more problematic with countries at different phases in the economic cycle. Accession candidates may use a variety of foreign exchange rate regimes before they join the EU, but ultimately their economic policies become a matter of common interest. Pressure to peg to the euro obviously increases as membership approaches, but there is compelling evidence that countries should hold back on pegging to the euro until they have achieved sufficient convergence to attain credibility for a policy of fixed exchange rates.

New Economics Papers: this item is included in nep-cba, nep-fmk, nep-ifn, nep-mac and nep-mon
Date: 2000-10-10, Revised 2000-10-11
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