Varieties of euro adoption strategies in Visegrad countries before the pandemic crisis

The enlargement of the euro area (EA), an unfinished process, was low on the European agenda in the period between the 2008 and the 2020 crises. The socio-economic consequences of the coronavirus pandemic and frictions in geopolitics would call for a coherent Europe, yet new and old fault-lines appeared in the EU involving the eastern periphery where sovereignty issues gained particular importance. The authors revisit the euro adoption process of the new member states, with a focus on the Visegrad Group (V4) countries, applying a two-track approach: a monetary policy analyses of EA entry as a rational cost/benefit issue and, second, a political economic survey of key stakeholders, set in the context of the dilemmas of retaining or sacrificing nominal monetary sovereignty. Even a piecemeal enlargement of the EA, involving Bulgaria, Croatia and Romania, would cause business consequences and political repercussions in the countries left out of EA. The paper concludes that further moves towards a developmental state model would preclude euro adoption and put such member state in collision course with the core Europe.

Assessing the optimality of euro adoption in Romania through shock correlations

The present paper is concerned with the prospect of euro adoption in Romania. The study starts from the relevant literature of the Optimum Currency Areas and identifies the most widely acknowledged meta property and methodological model for this purpose: the SVAR Blanchard and Quah decomposition for identifying the supply and demand shocks. Employing the indicated model and the most recent data, we are able extract and analyse the underlying shocks that hit 34 European economic entities in the period 1995-2019, while also taking into account two crucial structural changes for the Romanian economy – central bank independence and EU accession. After performing the pairwise correlations between Romania and the rest of the economic entities for both the supply and demand disturbances, we map them on a bidimensional graph. We discover that while there is relevant integration and connectedness that ensures relatively high correlations between supply shocks, the politically-motivated monetary and fiscal policy disturbances that created ample and hectic demand side movements, are a factor of great concern for the prospect of single currency adoption in this Eastern European country. The findings support the view that there is room for the conduct of macro policies to become more supportive to the process of euro adoption and that the respect of convergence criteria would help in this respect. To our knowledge, this is the first study performing pairwise shock correlations between Romania and many other European economic entities, while also isolating the effect of post 2005 structural changes.

Inflationary expectations threaten eastern EU recovery

Significance Supply bottlenecks and higher energy prices have driven up prices. The OECD reported 4.6% annual inflation in September, and 18.9% for energy. In the EU, annual inflation reached 4.1% in October, from 3.4% in September, according to Eurostat’s flash estimate. Inflationary pressures could prove short-lived with inflation returning to normal next year, but eastern EU central banks are taking precautions. Impacts A severe fourth wave of the pandemic and continued trade bottlenecks globally in 2022 could threaten stability. Investment could focus on expanding new sectors to lower EU-11 economies’ carbon intensity and diversify supply chains. Significant monetary policy divergence could delay euro adoption in the EU-11.

Coherence and Entropy of Credit Cycles across the Euro Area Candidate Countries

The pattern of financial cycles in the European Union has direct impacts on financial stability and economic sustainability in view of adoption of the euro. The purpose of the article is to identify the degree of coherence of credit cycles in the countries potentially seeking to adopt the euro with the credit cycle inside the Eurozone. We first estimate the credit cycles in the selected countries and in the euro area (at the aggregate level) and filter the series with the Hodrick–Prescott filter for the period 1999Q1–2020Q4. Based on these values, we compute the indicators that define the credit cycle similarity and synchronicity in the selected countries and a set of entropy measures (block entropy, entropy rate, Bayesian entropy) to show the high degree of heterogeneity, noting that the manifestation of the global financial crisis has changed the credit cycle patterns in some countries. Our novel approach provides analytical tools to cope with euro adoption decisions, showing how the coherence of credit cycles can be increased among European countries and how the national macroprudential policies can be better coordinated, especially in light of changes caused by the pandemic crisis.

Advantages and Risks of Accession to Eurozone for the Czech Republic

The article examines the benefits and risks of the euro adoption for the Czech Republic. In the last decade, in the light of structural problems of the economic and monetary union of the European Union and the Czech euroscepticism that has intensified against this background, the problem has become more of political nature and one of burning issues in relations between the Czech Republic and the EU. The paper analyzes the benefits and risks of such a decision. Special attention is paid to political factors – starting from the possible membership in the EMU institutions and ending with the potential overall improvement of relations with the leading countries of the EU. The authors conclude that from an economic point of view, the eurozone membership is beneficial for the Czech Republic if the level of labour productivity increases before the adoption. However, this issue presents the problem of the overall geopolitical orientation of the Czech Republic, which has to choose between striving to get into the «core» of the integration or the relentless defense of its national sovereignty within the European Union.

Can Monetary Integration Improve Productivity? Empirical Evidence of Eurozone

European monetary integration must be understood as an additional step towards strengthening the close ties that have been fostered after the Second World War. The aim of this research is to determine the effect of adopting the euro in terms of productivity growth, measured as the total factor productivity (TPF) variation. We used a panel data analysis with two-way fixed effects to estimate the effects of Euro adoption on the productivity growth. Two panels from 1996 to 2016 were used –one comprised 28 countries of EU members; the other only included 13 countries which joined the EU since 2004. Our findings suggest that the productivity growth of the countries that joined in 2004 and adopted the euro was higher compared to those that maintained their own currency. In addition, we find that FDI was the main channel through which the adoption of the euro influenced productivity growth.