|
...Union, currency union, as the EMU is part of the acquis. EU members who have not or could not adopt the Euro, in "eurospeak," are in the "second stage of adopting the euro." Three "old" EU members states--the UK, Denmark and Sweden--are called "outs," as they have opted out of the EMU; while the ten new members are called the "pre-ins," as they have to join EMU, but have not yet met the convergence criteria. In order to join the EMU, economic and fiscal guidelines were set forth by the 1992 Maastricht Treaty. (1) The duration of the derogation and the timeline for adopting the euro is open ended.
The Maastricht Treaty criteria for joining the EMU are:
1. The inflation rate is to be not more than 1.5% points above the average inflation rate of the three best performing member states of the Euro system.
2. Long-term interest rates are to be not more than 2% points above the corresponding level in those three countries.
3. The public sector deficit must not exceed 3% of the GDP and the level of public debt must not be higher than 60% of the GDP.
4. The country must have participated, for at least two years, in the European Exchange Rate Mechanism (ERM2) within the nomal fluctuation margins, without any devaluation being required.
To evaluate the progress of each nation in meeting the Maastricht criteria, each country must submit an annual report to the Economic and Financial Committee. The committee is composed of two member from each member state, two members from the Commission and two members from the European Central Bank (Council Decision of 21 December 1998, 2003/476/EC) (2) and is charged with evaluating how well those member states who are in the "second stage as regards their monetary and financial situation and general payments system" have progressed in meeting the Maastricht criteria.
Economists believe that countries wanting to join a monetary union must meet the criteria as defined by the optimal currency area theory. Optimal currency theory was articulated by the Nobel Prize winning Robert Mundell (1961, 1968). (3) He argued that a group of countries will benefit from a common currency if three conditions are satisfied. The three conditions are: (4)
1. The group of countries should not be hit by shocks that are too asymmetric, i.e., one country should not be substantially worse off while the other countries are booming.
2. There is a high degree of labor mobility and/or wage flexibility within the group of countries.
3. There is a centralized fiscal policy in place that will transfer money or other resources from countries that are doing well to countries that are doing poorly.
Measuring Economic and Business Cycle Synchronicity, (Criterion 1)
Since 1990, the Hungarian economy has been radically transformed. Not only was parliamentary democracy introduced, but economic and trade policies were shifted from looking East to looking West. The economy was successfully privatized, and a functioning market economy was created.
Literature analyzing the business cycle synchronicity between current EU members found that there is a divergence between the core (Germany, France, Austria and the Benelux countries) and some periphery countries (Italy and those geographically furthest from the core). In addition, the cycles among the core countries are stronger than among those on the periphery. Since Hungary's economic transformation has been mostly export driven, we therefore analyzed the co-movements between Hungary and the EUI5, the EU12 and some of the EU core members--Germany, France, Austria and Italy, as these countries are Hungary's largest trading partners. (5)
The symmetry between the different economies in the EU can be obtained by analyzing raw data from representative countries. A commonly used method of judging the similarities of economic structures is by the contribution of each sector to the GDP, and by the sectoral composition of employment. On a superficial level, the structure of the economies of the EU15, the EU12, Germany, Italy, France and Austria and that of Hungary are very similar, as shown in Tables 1 and 2. Thus, considering the similarities in the structure of the Hungarian economy to that of her largest trading partners and the EU, it appears that Hungary may be a good candidate to join the EMU.
A more detailed analysis of the synchronization of business cycles between the EU15, the EU12 and Hungary can be measured by GDP fluctuation rates and industrial production rates. These two indicators are typically chosen as...
NOTE: All illustrations and photos
have been removed from this article.
More articles from East European Quarterly
Romanian voices of the Second World War: remembrance and repression., March 22, 2006
Turkey's "return" to multi-party politics: a social interpretation., March 22, 2006
Bulgaria's population implosion., March 22, 2006
Looking for additional articles?
Search our database of over 3 million articles.
Looking for more in-depth information on this industry?
Search our complete database of Industry & Market reports by text, subject, publication
name or publication date.
About Goliath
Whether you're looking for sales prospects, competitive information, company
analysis or best practices in managing your organization,
Goliath can help you meet your business needs.
Our extensive business information databases empower business
professionals with both the breadth and depth of credible,
authoritative information they need to support their business
goals. Whether it be strategic planning, sales prospecting,
company research or defining management best practices -
Goliath is your leading source for accurate information.
|
