Abstract
The EMU membership necessitates only the fulfillment of Maastricht
Convergence Criteria and the 'Endogeneity of OCA criteria' hypothesis
seems to be the silent code both behind its sustainability and enlargement.
However, asymmetric shocks and the asymmetric transmission of the
monetary policy of ECB may jeopardize the sustainability of EMU. The
econometric analysis of co-integration of long term interest rates also puts
forward the asymmetries of business cycles between EMU members, 7
years after its launch. In case of an asymmetric shock, the lack of flexibility
of labor markets and the level of economic integration in some EMU
members are prone to pose serious problems. In terms of real convergence,
the GDP per capita of EMU members is diverging rather than converging.
The dispersion of growth rates and the loss of competitiveness of some
EMU members are also serious threats. The enlargement of EMU seems to
further aggregate the problem as it will make the ECB 's one monetary
policy harder to fit to an enlarged all. The new EMU members will face a
dilemma between nominal and real convergence due to their catching-up
process. The EMU candidates are considered as small open economies, the
problems of which would not even be felt in EMU, but the prospect EMU
members will surely suffer at home in case of such asymmetries. The
endogenity of OCA criteria might still slowly progress but asymmetric
shocks will not wait for them to realize during the coming two or more
decades. Thus, the new EU member states have to evaluate their economies
also in terms of OCA criteria and real convergence and should be more
cautios in their rush to EMU. In the euro zone, precautions should be taken
for possible asymmetric shocks in terms of a sufficient federal budget and a
system for fiscal transfers.
References
- Prausello, F. (2004). 'Will Enlargement Put at Risk the Viability of EMU?' DISEFIN, Universita di Genova, Faculty of Science Politics Working Paper no.l/2004.
- Soukiazis, E. and Castro, V. (2005). 'How the Maastricht Criteria and the Stability and Growth Pact affected the convergence process in the European Union. A panel data analysis.' Journal of Policy Modelling, 27.
Abstract
The EMU membership necessitates only the fulfillment of Maastricht
Convergence Criteria and the 'Endogeneity of OCA criteria' hypothesis
seems to be the silent code both behind its sustainability and enlargement.
However, asymmetric shocks and the asymmetric transmission of the
monetary policy of ECB may jeopardize the sustainability of EMU. The
econometric analysis of co-integration of long term interest rates also puts
forward the asymmetries of business cycles between EMU members, 7
years after its launch. In case of an asymmetric shock, the lack of flexibility
of labor markets and the level of economic integration in some EMU
members are prone to pose serious problems. In terms of real convergence,
the GDP per capita of EMU members is diverging rather than converging.
The dispersion of growth rates and the loss of competitiveness of some
EMU members are also serious threats. The enlargement of EMU seems to
further aggregate the problem as it will make the ECB 's one monetary
policy harder to fit to an enlarged all. The new EMU members will face a
dilemma between nominal and real convergence due to their catching-up
process. The EMU candidates are considered as small open economies, the
problems of which would not even be felt in EMU, but the prospect EMU
members will surely suffer at home in case of such asymmetries. The
endogenity of OCA criteria might still slowly progress but asymmetric
shocks will not wait for them to realize during the coming two or more
decades. Thus, the new EU member states have to evaluate their economies
also in terms of OCA criteria and real convergence and should be more
cautios in their rush to EMU. In the euro zone, precautions should be taken
for possible asymmetric shocks in terms of a sufficient federal budget and a
system for fiscal transfers.
References
- Prausello, F. (2004). 'Will Enlargement Put at Risk the Viability of EMU?' DISEFIN, Universita di Genova, Faculty of Science Politics Working Paper no.l/2004.
- Soukiazis, E. and Castro, V. (2005). 'How the Maastricht Criteria and the Stability and Growth Pact affected the convergence process in the European Union. A panel data analysis.' Journal of Policy Modelling, 27.
Details
| Primary Language | English |
|---|---|
| Journal Section | Makaleler |
| Authors | |
| Publication Date | December 29, 2006 |
| Published in Issue | Year 2006 Volume: 14 Issue: 2 |
