Interpreting the Price Adjustment Dynamics in Transition Economies

Abstract

As a result of the decisions taken at the Copenhagen European Council meeting held in June 1993, the enlargement of the European Union (EU) to a number of applicant Central and Eastern European countries is no longer a question ofifbutwhen.From an economic point of view, EU accession will take place as soon as the applicant is able to:(a)cope with competitive pressure and market forces within the EU;(b)take on the obligations of membership, including allegiance to the aims of political unification as well as Economic and Monetary Union (EMU). The European Central Bank (ECB) points out that: “Even though the fulfilment of the Maastricht convergence criteria (including price stability, the sustainability of public finance, exchange rate stability in the framework of participation in the exchange rate mechanism and the convergence of interest rates) is not mandatory for EU accession, accession countries’ should have macroeconomic programmes consistent with those prevailing in the Euro area in their policy agenda” (ECB, 2000,p. 44). Inflation is extremely important according to the EU policy agenda: “Accession countries need to continue to implement monetary policies geared towards achieving and maintaining price stability, and to support this process with prudent fiscal policies and adequate structural reforms.” (ECB, 2000, p. 49).