Maastricht Criteria Research Articles

ACCESSION OF THE REPUBLIC OF CROATIA TO THE EUROPEAN ECONOMIC AND MONETARY UNION

European monetary integration is a long-term process which ended with the establishment of the European Economic and Monetary union in 2002. Entering in the last stage of integration and adopting the euro is significant step for the economies of member states. To participate in the EMU, member states need to fulfil certain criteria, known as the convergence criteria or Maastricht criteria, which essentially comprise the fulfilment of the price stability, financial stability and stability of exchange rates and interest rates. Considering nominal criteria, member states must accomplish real convergence which means they need to reduce development lagging after other EU members. This paper examines effects of euro adoption on entire European Union including Republic of Croatia. The effects of adopting the euro on Croatian economy are explored from microeconomic and macroeconomic aspect. Regarding the variety of positive, but also negative effects on Croatian economy which are analysed in this paper, it can be concluded that adopting the euro has a positive effect on Croatian economy, assuming the convergence criteria achievement and initiation of the structural reforms that will reduce development disparities between Croatian economy and economies of the rest EU member states.

Twin deficits threat in the European Union

The aim of the contribution was to identify presence and contagion threat of twin defi cits, i.e. simultaneous budget and current account defi cit in the EU countries. Using correlations and Granger causality testing we recorded existence of twin defi cits in most of EU countries. In several countries we confi rmed traditional causality that budget defi cit implies current account defi cit. In several other countries the opposite, known as current account targeting, was true. In two counties (Spain and Hungary) bi-causality was detected. We consider existence of bi-causality as the most complicated situation in practice. Then it is a real vicious cycle. Policy makers must target both imbalances at the same time, to solve this problem, which can be very diffi cult. Persistent macroeconomic problems in these two countries confi rm our assumption.Our paper extends existing literature by determination of two thresholds for public debt-to-GDP which modify occurrence and risk of twin defi cits in the EU countries. These break points were identifi ed via threshold panel data model. Twin defi cits problems are not probable for countries with public debt-to-GDP lower than 30.668%. However, risk of this phenomenon is much higher if public debt is from 30.688% to 98.126%. Countries with public debt over 98.126% suffer from high and persistent twin imbalances. Therefore we suggest reconsideration of Maastricht criterion on public debt and its reduction to 30%. Finally we observe contagion effect of twin defi cits throughout EU countries regardless their economic performance or the euro area membership which is indirectly triggered also in the case of non-euro area members.

European handling of implicit and explicit government debt as an obstacle to the funding-type pension reforms

In light of an analysis of Hungarian experience and as a result of the lessons that can be learned from it, I show in this article that the terms of the Stability and Growth Pact (SGP, the so-called ‘Maastricht criteria’) are barriers to a desirable reform of pay-as-you-go (PAYG) type pension systems. Following on from this, a proposal to modify these criteria so that this problem is eliminated is presented. The main problem with the SGP is that it only deals with explicit government debt and ignores implicit debt. Although it renders reforms politically palatable, it will increase overall debt in the curse of reducing the explicit one. I also review the rationale and possible types of funding of pension systems and propose a simple model for identifying the likely time-span of the transition from a PAYG system into a fully funded one.

The Euro and Central Europe (from points of view of monetary integration maturity)

The paper discusses the frameworks and development of the introduction of the Euro in Central Europe, with a focus on pre-entry countries (Czechia, Hungary, Poland, Romania and Croatia). The main elements of monetary integration maturity are the state of real-integration (possibilities of large saving in transaction costs), meeting the criteria of functioning market economy and the single market; macro-economic stability and meeting the Maastricht criteria; and shortcomings of absorption (integration) capacities of the EU. Controversial questions are also discussed, such as requirements concerning inflation, the budget deficit or exchange rate stability. The paper argues that the countries under scrutiny show diverging courses of action and policies, public support is also unclear, and the interests of TNCs and political elites contradict each other. Cultural, legal, security or emotional factors will pay a key role in eventual adoption, and prospects also depend on the solution of the current debt and migration crises.

DEVELOPMENT PROSPECTS OF LONDON AS THE WORLD’S FINANCIAL CENTER IN THE CONDITIONS OF BREXIT

The purpose of the study is to examine the role of London as the global financial center in the modern international financial system under the conditions of Britain's withdrawal from the European Union. Methodology. During the study, the comparative method, methods of statistics and economic-mathematical modeling were used. The methodological and theoretical basis of the study is the fundamental provisions of international economic relations, the study of economists in the field of international monetary and financial relations. Information basis is analytical reports of international financial centers and statistical databases of international organizations. Results. Nowadays, London has all the necessary factors for success: open economy, developed financial infrastructure, stability of taxation system, geographical location, long-term government support, transparent policy, investor diversity and multi-culture. It is revealed that a growing variety of financial instruments is a characteristic feature of London as a modern global financial center. As a result, London is gradually winning the battle for the title of the world's leading financial center. The Government of the United Kingdom constantly develops growth strategies of the City of London, creates favorable conditions for the work of international companies, and attracts highly qualified specialists from other countries in the field of finance and law. The competent policy of the state and the wide range of services provided for the successful transactions on stock exchanges and commodity markets help London to maintain undisputed leadership in the global financial market and minimize losses associated with Brexit. At the same time, the decision of the UK to withdraw from the EU had a negative impact on the stability of the country's banking system, it had provoked a decline in the country's credit ratings, a drop in the pound sterling against the dollar and the euro. Another problem for the City of London was the speculation around the loss of multinational companies that might prefer Frankfurt, after the completion of the UK's exit from the EU. Regression analysis revealed that the FTSE 100 index is influenced by such indicators: the industrial production index, the short-term interest rate and the money supply. It was revealed that the current stability of the UK financial system is related to the yield of government securities: a decrease in yield leads to an increase in the stability of the financial system. Practical implications. The study showed that London still remains the most significant financial center in the world, despite concerns about the massive loss of investors and capital as a result of Brexit. In the future, one can expect a strengthening of the pound sterling and higher policy of the Bank of England than in the euro zone, increase of interest rates and a reduction in the tax rates, due to the final withdrawal from the EU, the UK government will no longer have to meet the Maastricht criteria. On the other hand, the UK is not going to enter the EU Banking Union, which will maintain a fairly high level of liberalization in the country's banking system. All this, in turn, will make London even more attractive for national and foreign investors. Value. The role and place of London in the modern global economy and the interest of investors from different countries in the City of London determine the value of this research in the context of the current development of the global financial market and the possible consequences of Brexit, which in the long run are mostly positive.

The impact of supranational fiscal rules on public finance: the case of EMU member states

The following paper deals with the topical issue of fiscal surveillance in the EMU. We focus on analysing the impact of the EU's supranational fiscal rules [i.e., the Maastricht criteria for entering the EMU and the subsequent stability and growth pact (SGP)] on the fiscal behaviour of EMU member states in order to acquire new insights into solutions needed to ensure fiscal discipline in the future. With the regression of fiscal reaction functions for the panel of euro area countries, we estimate the changes occurring in discretionary fiscal policy in the Maastricht period and in the period after entering the EMU when the policy became governed by the SGP. Estimates show that EMU member states' discretionary fiscal policy was procyclical in the 1980s, but turned countercyclical in the Maastricht period. In the SGP period, the countercyclical behaviour decreased and fiscal policy became acyclical. We conclude that the difference in fiscal behaviour before and after entering the EMU is the result of a change in the incentives and that solutions should thus also be looked for in creating certain forms of positive incentives for fiscal discipline.

The impact of supranational fiscal rules on public finance: the case of EMU member states

The following paper deals with the topical issue of fiscal surveillance in the EMU. We focus on analysing the impact of the EU's supranational fiscal rules [i.e., the Maastricht criteria for entering the EMU and the subsequent stability and growth pact (SGP)] on the fiscal behaviour of EMU member states in order to acquire new insights into solutions needed to ensure fiscal discipline in the future. With the regression of fiscal reaction functions for the panel of euro area countries, we estimate the changes occurring in discretionary fiscal policy in the Maastricht period and in the period after entering the EMU when the policy became governed by the SGP. Estimates show that EMU member states' discretionary fiscal policy was procyclical in the 1980s, but turned countercyclical in the Maastricht period. In the SGP period, the countercyclical behaviour decreased and fiscal policy became acyclical. We conclude that the difference in fiscal behaviour before and after entering the EMU is the result of a change in the incentives and that solutions should thus also be looked for in creating certain forms of positive incentives for fiscal discipline.

KÜRESEL EKONOMİK KRİZ SÜRECİNDE ADAY ÜLKELERİN MALİ PERFORMANSLARININ AVRUPA BİRLİĞİ’NE ÜYELİK KRİTERLERİNE UYUMU

European Union adopted the Maastricht criteria to ensure fiscal discipline and sustainable economic growth in 1993. The Maastricht criteria is not a requirement for membership to the European Union, but it is necessity for monetary discipline. However, the global economic crisis began after 2007 deeply affected both the European Union member states and candidate countries. The European Union has set the year 2016 as a deadline till which member countries will meet the Maastricht criteria, because the effect of the global crisis in 2009 has significantly increased their public deficits and debt ratio. Therefore, the European Union has taken several measures to restore deteriorating fiscal balance in the post-global crisis and to avoid the recurrence of similar cases. Turkey is also concerned with this application of the European Union because of the continuing negotiation process. This study analyzes the state of preparation of Turkey and other candidate countries.

KÜRESEL EKONOMİK KRİZ SÜRECİNDE ADAY ÜLKELERİN MALİ PERFORMANSLARININ AVRUPA BİRLİĞİ’NE ÜYELİK KRİTERLERİNE UYUMU

Avrupa Birliği mali disiplin ve sürdürülebilir bir ekonomik büyüme sağlamak için 1993’te Maastricht kriterlerini benimsedi. Maasrticht kriterleri Avrupa Birliğine üyelik için bir değil ama parasal disiplin için zorunludur. Ancak 2007 sonrası başlayan global kriz hem Avrupa Birliği’ne üye ülkeleri hem de aday ülkeleri derinden etkilemiştir. Avrupa Birliği, üye ülkelerin Maastricht kriterlerini tekrar sağlayabilmeleri için 2016’ya kadar devam edecek olan bir takvim belirlemiştir. Zira 2009 yılında etkisini gösteren küresel kriz, kamu açıklarını ve borç stoklarını önemli ölçüde artırmıştır. Bu nedenle, kriz sonrası dönemde bozulan mali dengelerin yeniden sağlanması ve benzer durumların tekrar yaşanmaması için Avrupa Birliği çeşitli önlemler almıştır. Müzakere süreci devam ettiği için Avrupa Birliğinin uygulamaları Türkiye'yi de ilgilendirmektedir. Bu çalışma Türkiye’nin ve diğer aday ülkelerin hazırlık durumunu analiz etmektedir.

Nová kritéria pro přijetí Eura

The sovereign debt crisis inside the European Monetary Union (EMU) as well as competitiveness problems of some EMU members made the members and non-members of the club address one question: Is a monetary union advantageous? This paper deals with the issue whether or not the Maastricht criteria are good indicators for deciding to join the eurozone, namely for a small open economy, as the Czech Republic. In particular, this analysis addresses the issue of price competition, which can be measured by the real effective exchange rate. In fact, the Maastricht criteria do not reflect the competitiveness of a country. Thus the arguments concerning the advantages/disadvantages of the adoption of a common currency should not be based only on the Maastricht criteria, but at first on the philosophy of the real effective exchange rate. We define a basis for setting new criteria to decideing on joining the monetary union. To sum up, if depreciation/devaluation of the real exchange rate is not a competitive advantage for both Czech exports and the Czech economy (especially in the long term), then the main economic argument against joining the EMU disappears.

Do Spanish fiscal regimes follow the euro-area trends? Evidence from Markov-Switching fiscal rules

As has been the case for Spain, the Great Recession has exposed the destabilizing potential of national fiscal decisions which do not adhere to the European rules for the euro area. In this context, we characterize the discretionary behavior of Spanish fiscal policymakers in comparison with the euro-area one. For this purpose, we estimate cyclically-adjusted fiscal policy rules for the period 1986–2012 within a Markov-Switching framework. Our results show that the discretionary fiscal behavior of Spanish and euro-area governments has manifested switching properties throughout the last thirty years, uncovering the existence of two fiscal regimes which shift in accordance with the extent of deficit persistence and the intensity of debt-stabilizing and output-countercyclical measures. Irrespective of fiscal regime, the Spanish authorities have committed to meeting the Maastricht criteria and the SGP rules by centering on the public deficit-debt association, whereas the euro-area administrations have engaged in stimulating the economic activity by focusing on the deficit-output gap relation. Our conclusions are robust to the impact of house price changes on fiscal policy variables for the Spanish case.

What drives interdependence of FDI among host countries? The role of geographic proximity and similarity in public debt

We investigate the drivers of interdependence between flows of foreign direct investment (FDI), focusing on two potential channels: interdependence between geographically close FDI destination countries, and between destination countries with similar levels of public debt. Using data on bilateral FDI flows between the 27 EU member countries in 2007, we find that in addition to geographic proximity, similarity in public debt levels drives cross-country correlation in FDI inflows. The public debt threshold of 60% of GDP prescribed by the Maastricht Treaty is a crucial driver of interdependence between FDI inflows. FDI inflows are correlated within the group of compliant countries as well as within the group of non-compliers. This is consistent with the fact that foreign investors distinguish between countries which violate this Maastricht criterion and those that do not.

Assessing the impact of structural indicators for the European Union banking system on economic evolution: an empirical investigation in EU

This study aims to investigate the impact of structural indicators for the European Union banking system on economic evolution. The methodological framework is the analysis of three variables of economic evolution. The econometric equation is built by regression test using annual data for the period 2008 to 2014. The indicators of the European banking system consist of fifteen independent variables and their impact on three economic variables consisting of GDP at current market prices, EMU convergence criterion bond yields (Maastricht criterion) and HICP annual average inflation rates are investigated on the growth in EU (dependent variable). The regression results show that there is statistical significant impact at different level 1%, 5% and 10% of all independent variables on EMU convergence criterion bond yields (Maastricht criterion), and in thirteen variables on GDP at current market prices except total assets of domestic banking groups and branches of credit institutions from rest of the world variables. Finally, only three variables total assets of domestic banking groups, branches of credit institutions from rest of the world and assets of pension funds have significant impact on HICP annual average inflation rates. The researchers recommend the need to build the financial stability in the banking system of the European Union with the continuity of modifying commercial legislation based on environmental changes and raise transparency to increase and diversify investments in the financial markets to reduce risk, and, thus, this will lead to increase in the level of social responsibility toward socialist economic

The Resilience of Future Monetary Union in Emerging Countries to International Financial Shocks: A New Set of Banking and Financial Regional Criteria

This survey presents an analysis that incorporates the lessons of the positive literature on the third generation of crises into the traditional optimum currency area theory to propose a new set of criteria that ensure better resilience of a monetary union to financial contagion. The study stresses the fact that new banking and financial criteria must be considered to protect integrated economies against common international financial shocks. The 2007 US liquidity crisis that spread into the Eurozone and generated a considerable economic slowdown validates these propositions. It underlines the insufficiency of the Maastricht criteria, which do not incorporate these measures and do not make it possible to anticipate or resorb the spread of international financial crisis. These considerations could be integrated into the future monetary union projects in emerging countries organised today in common markets and allow for the circumvention of the disastrous economic and social effects generated by the spread of financial crisis in the real sector of these economies.

Should the Maastricht fiscal criteria be redefined?

The Statistical Office of the European Commission, Eurostat, at the beginning of February 2015, released for the first time data on contingent liabilities and non-performing loans of European Union (EU) member states. Contingent liabilities include guarantees, liabilities related to public-private partnerships and liabilities of public corporations that are controlled by the state, but excluded from the statistical coverage of general government. The scale of the contingent liabilities of member states reveals a completely new image of their indebtedness and exposure to fiscal risks, and also raises the issue of the need to redefine the Maastricht fiscal criteria. It is obvious that member states – under pressure from budgetary restrictions (in line with the Maastricht criteria) – are creating liabilities that certainly affect the growth of public debt. At the same time these liabilities were only until recently beyond the reach of Eurostat.

Does Fiscal Convergence Lead to tax Convergence? Evidence from the Eurozone

Abstract Taxation is a major factor in political, economic, social and fiscal policy decisions. The current study looks at the eurozone Member States in order to establish if fiscal convergence towards the Maastricht criteria leads to tax convergence. The research method is sigma-convergence based on three different variation measures (the coefficient of variation, the Gini coefficient and the Theil index). The overall tax burden is used to define national tax systems. The research period is 1995-2013.

A Small Open Economy with the Balassa-Samuelson Effect

The Balassa-Samuelson (B-S) effect implies that highly productive countries have higher inflation and appreciating real exchange rates because of larger productivity growth differentials between tradable and nontradable sectors relative to advanced economies. The B-S effect might pose a threat to converging European countries, which would like to adopt the Euro because of the limits imposed on inflation and nominal exchange rate movements by the Maastricht criteria. The main goal of this paper is to judge whether the B-S effect is a relevant issue for the Czech Republic to comply with selected Maastricht criteria before adopting the Euro. For this purpose, a two-sector DSGE model of a small open economy is built and estimated using Bayesian techniques. The simulations from the model suggest that the B-S effect is not an issue for the Czech Republic when meeting the inflation and nominal exchange rate criteria. The costs of early adoption of the Euro are not large in terms of additional inflation pressures, which materialize mainly after the adoption of the single currency. Also, nominal exchange rate appreciation, driven by the B-S effect, does not breach the limit imposed by the ERM II mechanism.

The introduction of the Euro and Central Europe

ABSTRACT. Integration maturity means not just meeting the Maastricht convergence criteria, but we analyse integration maturity in broader terms, and we try to answer the question in the light of compliance with all of these requirements. The acceptance mean how far the participants of monetary integration are prepared to take over the required measures and fit into an institutional and policy structure, which is condition of successful operation of the system. This preparedness assume institutional and policy capacities as well, but also the political support of the project by all the actors, including the general public. The maturity and the acceptance are two sides of the coin, and both are necessary for the success of monetary integration.This paper concentrates on the three countries (Czech Republic, Hungary and Poland), and we try to explain, why they made a total turn concerning the euro issue, what are the main interest, and positions behind these drastic changes. We examine two major issues: a) how far the three Central European countries comply with the monetary integration maturity criteria, and how far they are ready to accept all of the circumstances and consequences, which follow from their participation in monetary integration.Keywords: Maastricht criteria, convergence, Euro, Central and Eastern Europe, integration maturity, monetary integration.JEL Classification : E 42, F45, P2Theoretical frameworksEvery integration body sets specific conditions or criteria for membership for those who wish to join it. This largely constitutes the issue of integration maturity of a given country or group of countries (the integration maturity was the focus of research conducted by a research group from the Department of World Economy at Corvinus University of Budapest in a program financed by the Hungarian National Research and Development Plan between 2002-2004 (see Palankai, 2004, 2005, and 2014). It can be shown that this maturity embeds a number of factors, as well as the level of integration and the type of the countries which wish to integrate.The integration maturity question is posed in connection with the increasingly close forms of integration and the agenda of the Economic and Monetary Union (the so-called 'positive integration'). The outcomes have clearly demonstrated that integration maturity cannot be left out of consideration. Even though market liberalization ('negative integration') always have consequences, they remain largely unilateral and asymmetric (meaning that the less-developed and weaker partners could lose more than win) and the retroactive effects are not revealed in an obvious manner. As the history of European integration showed, the question of unequal division of advantages was addressed either by asymmetric trade liberalization or financial transfer in favor of weaker partners (asymmetric associations).The situation changed with the Economic Union. The reciprocal effects became direct and more thorough. The economic problems of the less developed partners (e.g. budget deficit or regional inequalities) impact the economy of the more developed partner and can cause disturbances (e.g. by triggering inflation) in a more direct way. Thence, any decision to join an economic union brings about fundamental effects on the institutional and political structure of the country in question. With regard to this, maturity or preparedness for integration is an issue that has to be examined and is therefore a matter of common interest.Yet another reason was the aspiration for full EU membership of the Central and Eastern European countries. In their case, considering the huge differences in development and the unprecedented number of CEE candidates wishing to join the EU at once, it became clear to the EU policy-makers that the EU Enlargement would have more far-reaching consequences that previously envisaged.Due to the above, in the early 1990s the EU had to set two types of accession criteria, which assumed a certain level of integration maturity in the given context. …

Value Added Tax Gap in the Czech Republic

The paper deals with an estimation of tax evasion of value added tax in the Czech Republic during 2006–2012. For the estimation I have used the concept of tax gap which is based on a comparison of the theoretical tax liability in the economy with the actual tax receipts. According to my results the VAT gap in the Czech Republic gradually increased during the observed period and it is more than CZK 100 billion in the last three years. The most significant growth of VAT gap occurred between the years 2007 and 2008 and between 2011 and 2012 when the reduced VAT rate was increased by 4 percentage points. The second part of the paper focuses on impact of my estimates on tax policy of the Czech Republic. I discuss two different possibilities how the additional revenue gained from VAT gap reduction could be used – either to decrease the government deficit and therefore to meet the Maastricht criteria or to decrease tax burden on labour which influences particularly low income workers.

AVRUPA BİRLİĞİ UYUM SÜRECİNDE TÜRKİYE'NİN MAASTRİCHT KRİTERLERİNE GÖRE PERFORMANSI

After five enlargements, the major objective of is to have an efficient role in the global environment; by integrating all the European countries, each having different social, cultural, economic and political structures under the common ideal Single Europe which foresees peace democracy and welfare in the new millenniurn. The differences at the national level not only create variety in the Community but at the same time challenge the economic political and administrative harmonization and make the integration process more difficult in that respect. In the harmonization process, Turkey has to comply with the Copenhagen and Maastricht criteria (1993) in the field of economy, politics, social cohesion and law. The economic performance of the member and candidate countries are evaluated by five macroeconomic indicators to make sure that the candidate country has a stable economic environment and firm basis for integration before entering Euro Area. In this study, the economic performances of the member and candidate countries following the accession of new ten countries are analyzed based on Maastricht criteria and compared with the economic position of Turkey. Recently, Turkey has experienced positive developments in restoring stable macroeconomic environment. Under the Maastricht rules, fiscal indicators ore achieved as of 2005, and a convergence period has started for inflation and interest rates after the recent developments in the economy. Keywords: Maastricht Criteria, Exchange Rate, Fiscal Indicators.