Thoughts on the Dilemma of When to Introduce the Euro in Hungary

Abstract

In its EU accession treaty, Hungary committed to introducing the euro without a legally binding deadline. The question is therefore not whether the country will introduce the common currency, but when it will do so, and what factors play a role in the decision. Developments in recent years have confirmed that the euro system is able to weather a crisis, but also highlight that the euro does not in itself guarantee sustainable convergence. In addition to accession, members’ rights and obligations have also changed considerably, and these changes have not been completed. There are examples for successful economic policies without the euro and also for frustrated growth with the euro. Only one area has been identified where the advantages of membership are indisputable: yield spreads. In today’s international environment, this is much less important than in the past, but it is impossible to know how long this situation will last. Accordingly, the Hungarian strategy should target sustainable convergence, rather than the introduction of the euro. If the country can substantially reverse the increase in the government deficit and debt and keep them low, it would be worth waiting until the development paths related to the euro are outlined more clearly, while continuing with convergence. If this is not possible, the option to join the euro area as soon as possible should be preferred, which offers greater security but less room for autonomous manoeuvre.