Shocking Aspects of European Enlargement

Abstract

The objective of this article is to assess whether the recent economic evolution of EU accession countries and their expected developments for the coming years put them in a better or a worse position to join the euro. Using structural vector autoregression models, the results show that shocks are more asymmetric in candidate countries than in current euro-zone members and that the situation has worsened in the most recent years. However, it seems that monetary policies in accession countries are closely influenced by monetary conditions in the euro zone. If this is the case, then the costs of losing monetary independence when joining the euro would be reduced. In any case, and considering that, on average, correlations are still far from the values of the euro-zone countries, the flexibility of real sector and labor markets will be essential for the sustainability of joining the euro.

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