An empirical analysis of the sustainability of meeting the convergence criteria for Turkey's accession to the European Monetary System

Abstract

This paper compares Turkey against three other European Union countries, namely Germany, France and Italy in terms of the convergence criteria of the Maastricht Treaty and the Stability and Growth Pact for the potential acceptance of Turkey into the European Monetary System with single currency euro. The paper uses quantitative empirical analysis using macroeconomic data for the period 1999-2016 for all the three countries to compare and analyse the conditions of convergence between them. Results show convergence of EU countries in most criteria of the Maastricht Treaty and the Growth and Stability Pact during 1995-1999, prior to the creation of the European Union. During 1999-2005, Turkey exhibited convergence in all criteria except exchange rates, inflation rates and interest rates - during 2005-2016 it lacked convergence in areas of exchange rates, inflation rates and interest rates, again demonstrating that the country was not ready for economic integration with EU. This study attempts to consider the sustainability of Turkey's accession into the single currency European Monetary System using economic and monetary criteria only. The results from this research could throw insights into the macroeconomic and financial viability of the potential entry of Turkey into the single currency eurozone from policy perspective.