Ezoneplus – the Eastward Enlargement of the Eurozone
Newsletter no. 1 (14 December 2001)
In this issue:
First of all, welcome to the start of the Ezoneplus newsletter series. Ezoneplus, an international research project on the eastward enlargement of the eurozone embraces research institutions from seven European countries. It is funded by the European Commission and launched officially in August this year. The Jean Monnet Centre of Excellence of the Freie Universität Berlin acts as project co-ordinator and will inform about the project’s current activities every five to six weeks via this newsletter.
The participating research institutions from eastern and western Europe are:
Estonia: University of Tartu
Finland: VATT institute
Germany: Freie Universität Berlin / Jean Monnet Centre of Excellence
Italy: University of Bologna
Poland: Warsaw School of Economics
Portugal: University of Evora
Slovenia: Institute for Economic Research
All went well and the first Ezoneplus workshop on the "Eastward Enlargement of the Eurozone" was a huge success for the project. Thanks to the generous support of the European Commission and Deutsche Bank Research, we were able to organise a fruitful environment to focus on the main aspects related to the project’s working packages. Thus, at the heart of the Friday sessions were:
The role of capital markets, which was covered by Thomas Meyer of the Berlin team. Prof. Dr. Jaako Kiander from VATT, Finland dealt with labour markets development and Prof. Dr. Renzo Orsi, University of Bologna, Italy sketched the main problems attached to real appreciation of CEE currencies. Next Prof. Dr. Isabel Vieira, University of Evora, Portugal revealed major issues concerning trade & foreign direct investment, whereas Dr. Vladimir Lavrac from the IER, Slovenia tackled prospective risks with regard to exchange rate regimes and monetary and fiscal policies during the run-up to EMU. Finally, Achim Kemmerling, FU Berlin developed a framework dealing with social issues stemming from enlarging the eurozone.
Moreover, we were especially grateful for the asisstance of Deutsche Bank Research in establishing the first "Euroluncheon"; a formal dinner series created to launch informal debate between embassies, people from the banking and industrial sector as well as academia. The first Euroluncheon took place on Friday 19th at Deutsche Bank Research Berlin and key speeches were delivered by Ulrich Schröder of the Bank's team in Frankfurt and the co-ordinating professor of the Berlin team, Michael Bolle.
The initial Ezoneplus workshop concluded with administrative and financial matters and especially focussed on appropriate means of dissemination.
Coming up Euroluncheon no. 2 will take place probably in February 2002 and will be announced in time.
The Berlin team surveyed the major risks and possible benefits which stem from the CEE countries’ ambition to join the euro area. This first working paper was published in “Intereconomics”, Nov/Dec 2001, pp. 298-304.
WP1 Abstract - "New Risks Ahead. The Eastward Enlargement of the Eurozone"
Eastward enlargement is one of the hot topics in European economics. The accession of central and eastern European Countries (CEEC) into the European Union (EU) is accompanied by an extension of the eurozone to this region.
This paper surveys likely outcomes and challenges of this specific feature of EU enlargement. Moreover, the article represents the start of an international research project dealing with these questions. Research is structured along different markets. Hence, the impact of an adoption of the euro is analysed for capital and labour markets as well as with respect to exchange rate and monetary policies.
Our main position is that the euro has in general beneficiary effects for the CEEC and the current EU in all examined markets. However, these benefits evolve mainly in the long run, whereas the short-term costs of adaptation to the new situation may be high.
Although we believe that the present value of long-term benefits exceeds these costs, it is by no means clear that policy-makers will share this view. Due to the usual political-economy transformation, the assessment of costs and benefits may be different for politicians than compared to any overall perspective.
If official policies become unforeseeable, so will private behaviour. International investors may reverse their capital flows, draining precious liquidity, and leading to currency and financial crises whenever they perceive the authorities’ commitment to EMU less credible.
This article highlights some thinkable mechanisms how any such crisis could evolve. It, thus, sets the agenda for further research, mainly, with the focus on appropriate policy strategies to keep adaptation costs as low as possible, minimise other external risks, without hampering the long-term benefits.
JEL-Classification: E0, E6, G3
Keywords: EMU, EU enlargement, monetary integration
The complete paper can be downloaded as a pdf-file from www.ezoneplus.org/publications.php.
By the end of the year the Ezoneplus-consortium will deliver its first state of the art reports to the European Commission. The papers will encompass all relevant aspects of the six major policy fields covered by the project: Capital and Labour Markets, Trade and FDI, Exchange Rate Policies, Monetary and Fiscal Policies, and the Social Dimension. After short revision by European officials, the studies will become available in print in Q1 2002.
Regional Workshop in Berlin 08.02.2002
The regional workshop in February 2002 is part of our continuing dissemination activities. The rationale of the event is to present the project to the local scientific community in Berlin and Brandenburg and to initiate an encompassing academic discussion regarding the eurozone enlargement. Therefore, numerous institutions such as the Deutsche Forschungsgemeinschaft DFG, DIW, DGAP, IEP, SWP and Deutsche Bank Research are invited to participate in the hopefully lively debate.
The workshop will take place at Berlin's Humboldt university on friday, February 8th. Detailed information on place and schedule will be announced in time on the Ezoneplus website.
By invitation of the Warsaw School of Economics, researchers from Poland, the Czech Republic and Germany will meet in Krakow/Poland next April. This event will focus primarily on recent trade and FDI movements as well as on eastern European capital markets. With regard to possible shaping and re-shaping effects on financial markets and related actors, the workshop intends to provide concise cross-country analysis. Since huge capital inflows allow for less reliance on domestic savings rates on the one hand but tend to trigger excessive real exchange-rate appreciation on the other, debate will include the scope of national political decision-making responding to possible trade-offs.