On a Low-Competitiveness Country Joining the Eurozone: Are There Lessons from Greece?

Abstract

Seven remaining states are presently on the Eurozone’s enlargement agenda: Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania and Sweden. Except Sweden, all these countries tend to have low competitiveness not only relative to Germany but also to most of the Eurozone countries (especially, Austria, Belgium, Finland, France, Ireland, Italy, Luxembourg and the Netherlands). For countries adopting the euro, issues of political economy may have a decisive effect on the eventual outcome and largely determine their economic prospects within the Eurozone. The Greek experience shows that the intensity of partisan strife is certainly an important element to be taken into account in a far from easy assessment of how entry will likely affect the country's economic progress. The crucial issue that needs to be considered is whether entry will improve or worsen the prospects for a substantial gain in competitiveness. It is the assessment of how entry will affect the forces favoring reforms relative to those opposing them that should ultimately determine the decision to opt for early or delayed entry.