Shocking aspects of European enlargement

Abstract

The objective of this paper is to assess if the recent economic evolution of this countries and their expected developments for the next years put them in a better or a worst position to join the euro. Using structural VAR models, the results show that shocks are more asymmetric in candidate countries than in current Euro area 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 area. If this is the case, then the costs of loosing monetary independence when joining the euro would be reduced. In any case, and taking into account that, in average, correlations are still far away from the values of the Euro area countries, the flexibility of real sector and labour markets will be essential for the sustainability of joining the euro.