Abstract
This paper argues that there are conditions for successful euro area (EA) accession, apart from fiscal rectitude. One is an ex ante critical mass of real convergence which should enhance lasting nominal convergence. Another condition is an overhaul of EA mechanisms and policies that should make it a properly functioning monetary union, which implies an adequate mix between risk-reduction and risk-sharing. It is argued that risk-sharing cannot be secured by private sector arrangements only. Entering the ERM2 is deemed to be no less demanding than euro area accession per se, especially for countries that use fl exible exchange rate regimes. The paper examines also the infl uence of production (value) chains on the efficacy of autonomous monetary and exchange rate policies when it comes to controlling external imbalances; macro-prudential policies, too, are highlighted in this regard. Steady productivity gains are a must for surmounting the middle income trap and achieving sustainable real convergence.
Accepted Version (
Free)
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call