Monetary Integration of the New EU Member States: What Sets the Pace of Euro Adoption?

Abstract

AbstractHow fast should the new Member States of the European Union (NMS) relinquish their domestic monetary and exchange rate autonomy? While the Maastricht convergence criteria are attracting significant attention (particularly the inflation and deficit criteria), we think the debate should also examine the status of their economic structures and the progress of integration within the EU. Diverse aspects of the monetary integration of the NMS into the euro area are examined. We find less structural convergence is associated with less income convergence. The exchange rate regimes have a bearing on the speed of real convergence: for some NMS, and for some more time, exchange rate flexibility may still serve as a useful shock absorber.