Fiscal Costs of Delaying the EMU Accession - Medium Term Fiscal Projection for Selected New EU Members

Abstract

The paper presents series of medium term economic simulations, evaluating fiscal costs of different EMU entry scenarios for six of the new EU members. Projections cover period of 2004- 2012 and use basic macroeconomic equations in an attempt to assess the value of public debtrelated costs that may occur in each of the countries, under specific assumptions. Four series of simulations were run, assuming two different EMU entry dates (2007 and 2012), and two growth scenarios (2% and 5% of real GDP growth p.a.). For each growth variant the early and late accession projections are compared in order to evaluate the net fiscal effect of delaying the EMU entry. Those effects depend on country’s starting position and are quite significant for most of the countries in question. Poland and Hungary are the biggest winners of the earlier EMU entrysimulations, both saving equivalence of 18-20% of their 2004 GDP levels (as compared to results of the late accession scenarios). It appears that the GDP growth rate does not seriously affect thevolume of the gains, which are rather generated by the faster interest rate reduction and tighter fiscal policies in case of the earlier EMU accession.