Twentieth Anniversary of the Euro: Why are Some Countries Still Not Willing to Join? Economists’ View

Abstract

Twenty years after the introduction of the euro, some European countries are still not willing to join the monetary union. Sweden, Czechia, Hungary, and Poland, although obliged to introduce the euro, decided to postpone this process indefinitely. There are various economic, political, legal, sociological, and even emotional factors underlying such a decision. In this paper, we focus on the key economic argument against euro adoption in these countries—the cost of the loss of monetary policy independence. Our results indicate that there already is a high correlation and synchronicity in key interest rates and business cycles between the euro area and non-euro area European countries. Most importantly, our analysis also suggests that business cycles in both groups of countries are predominately driven by the same (common) shocks. Following the postulates of the OCA theory, we therefore provide evidence supporting the view that the common monetary policy in these countries would, most likely, be an adequate substitute for national countercyclical policies.