Euro Area Enlargement and Euro Adoption Strategies

Zsolt Darvas and György Szapáry

No 304, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: The paper discusses the risks and challenges faced by the new members on the road to the euro and the strategies for and timing of euro adoption. We investigate the real-nominal convergence nexus from the perspective of euro area entry. We argue that the initial level of economic development as measured by per capita income and the speed of real convergence have a bearing on the strategies to follow and on the timing of entry into euro area. This is because the lower is the per capita income, the larger is the price level gap to close and the greater is the danger of credit booms and overheating. We argue that inflation targeting with floating rates is better suited than hard pegs to manage the price level catching-up process. We suggest a modification in the Maastricht inflation criterion which as currently defined has lost its economic logic.

Keywords: euro area enlargement; convergence; exchange rate; inflation; Maastricht (search for similar items in EconPapers)
JEL-codes: E31 E52 E60 F30 (search for similar items in EconPapers)
Pages: 85 pages
Date: 2008-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

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https://ec.europa.eu/economy_finance/publications/pages/publication12093_en.pdf (application/pdf)

Related works:
Working Paper: Euro Area Enlargement and Euro Adoption Strategies (2008)
Working Paper: Euro Area Enlargement and Euro Adoption Strategies (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0304

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