EMU Enlargement: A Progress Report

Introduction

The purpose of this paper is to concentrate on EMU enlargement, which seems to be the most important part of the unfinished integration agenda, from an economic standpoint and is raising the biggest controversies. The advocates of a rapid EMU enlargement stressed the high level of trade and business cycle integration of the NMS with the eurozone, and the potential benefits for the NMS in terms of decreasing transaction costs and the exchange rate risk. Opponents pointed out the costs of meeting the Maastricht criteria and giving up the supposed shock-absorbing role of the exchange rate. There were also some political and economic concerns in the OMS. The former came down to retaining a carrot which could be granted or withheld from the NMS depending on their good behavior, and some understandable concerns about how responsibly they were likely to behave after EU accession. Economic fears were mostly related to the controversial hypothesis that the accession of rapidly-growing countries would increase the inflationary pressure and interest rates in the eurozone, which would have an additional contractionary impact on the slower-growing economies of some OMS (see Rostowski, 2006; Zoubanov, 2006).