Twentieth anniversary of the euro: why are some countries still not willing to join? Economists’ view

Milan Deskar-Škrbić and Davor Kunovac ()
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Davor Kunovac: Croatian National Bank

No 39, Surveys from The Croatian National Bank, Croatia

Abstract: Twenty years after the introduction of the euro, some European countries are still not willing to join the monetary union. Sweden, Czechia, Hungary and Poland, al­though obliged to introduce the euro, decided to postpone this process indefinitely. There are various economic, political, legal, sociological and even emotional factors underlying such a decision. In this paper, we focus on the key economic argument against euro adoption in these countries - the cost of the loss of monetary policy independence. Our results indicate that there already is a high correlation and synchronicity in key interest rates and business cycles between the euro area and non-euro area European countries. Most importantly, our analysis also suggests that business cycles in both groups of countries are predominately driven by the same (common) shocks. Following the postulates of the OCA theory, we therefore provide evidence supporting the view that the common monetary policy in these countries would, most likely, be an adequate substitute for national countercyclical policies. Thus, decision of these countries to pursue a wait and see approach and stay out of the euro area for now cannot be explained by pure economic reasons.

Keywords: euro area enlargement; economic shocks; BVAR; common monetary policy; Mundellian trilemma (search for similar items in EconPapers)
JEL-codes: E32 E52 F45 (search for similar items in EconPapers)
Date: 2020-03
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Citations: View citations in EconPapers (6)

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Journal Article: Twentieth Anniversary of the Euro: Why are Some Countries Still Not Willing to Join? Economists’ View (2020)
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