CEEC transformation represents a comprehensive process of change with considerable consequences to all areas of the economy and society. Accession to EMU requires even more adaptability and flexibility with regard to the reform process. In view of this background and of significant welfare and productivity disparities between EU members and accession candidates, Ezoneplus has several specific objectives.

Research is structured along three stages. First, analysis will inquire the reshaping of markets as a consequence of an enlarged euro-zone.
On a second stage, policy analyses are included with special regard to fiscal and monetary policies and the social dimension.
Both stages are complemented by empirical research in the form of regional studies that comprise the most relevant areas.
Finally, Ezoneplus provides policy advice and develops strategies to cope with the challenge of an eastward enlargement of the euro-zone. Based on the findings of the previous stages it identifies means to reduce adaptation costs in the CEEC and the EU. Besides, it helps to recognise and handle external risks.

Markets

First, the enlargement will especially affect the economic conditions in CEEC via the eastern countries' access and imbedding in international capital markets, thereby enhancing systemic risks.
Thus, research will focus on the massive structural changes in the banking and financial sector in accession countries and member states of the EMU.
Second, research will concentrate on the impact of enlargement on labour markets. There are two aspects involved: First, there is the question of labour market flexibility with regard to wages and legal regulations and, second, there is the aspect of migration. Because of the fact that a large gap in wages is likely to persist, monetary incentives to migration will remain high during the integration process.
At the same time, the absorption capacity of labour markets in the countries of destination is restricted by prohibitively high unemployment.
Third, the changing patterns in the eastern countries' international trade relations are investigated in terms of their impact on the economies of both the accession and EU countries.
Additionally, research will concentrate on foreign direct investment (FDI). The comparative analysis of crucial macro-variables inter-related with trade and FDI in CEEC (prices, wages, growth rates, interest rates, exchange rates etc.) is based on various empirical models that record changing trade patterns and price/quality segments.
Countries participating in the first wave of enlargement may become more attractive for foreign investors. This might imply a redirection of FDI flows outside of and within the euro-zone leading to major changes in financial markets of accession countries. Thus, it is necessary to study these processes with regard to exchange rate regimes and the credibility of monetary and financial policy. Tracking the evolution of CEEC-currencies in the shadow of the EMU is the guiding thread for the analysis of all other markets.
Additional risks stem from the fact that a smooth economic integration of accessing countries depends on the success of the EMU that is by no means clear. Convincing economic arguments in favour of EMU are rare. The merits of the currency union in the absence of an optimum currency area are not obvious at all. Remarkable differences in productivity, the absence of a common economic policy and low labour mobility point to severe economic and political risks. The removal of the exchange rate instruments, the fiscal constraints of Maastricht and the Stability Pact as well as the no-bail-out clause put considerable weight on the flexibility of markets.
The EMU will only work if markets for labour, capital, and goods and services, are flexible enough to absorb asymmetric shocks. At the moment, neither labour nor capital markets are in a good shape. It will be argued that eastward enlargement and the success of the euro will contribute to an improvement of market adjustments potentials.

Policies

The project attempts to identify the criteria for a successful inclusion of accession countries that does not lead to distortions in the euro-system's development. National governments as well as the European Union will have an important role in providing political support and economic assistance to stabilise the transition process.
Special attention will be given to policy implications and recommendations on the national and EU level based on principles such as efficiency, subsidiarity, cohesion, and social fairness. Issues addressed will cover policies to mitigate structural changes, manpower policies, fiscal, monetary and exchange rate policies. The aim is to minimise financial and systemic risks as well as to implement income and social policies to accommodate the transition period and to avoid social conflicts.
The effects of EMU on fiscal and monetary policies in the CEEC and in the euro-zone will be examined in regard to potential risks and dangers emerging throughout this process. Macroeconomic models and sensitivity analyses estimating crucial levels of related variables will record risks and prospects associated with EMU accession pertaining to the fiscal and monetary stance. The second research issue concerns the social dimensions in accession countries as well as in EU welfare states. The potential of social conflict within CEEC and EMU countries will be looked at on theoretical considerations of contemporary political economy and its empirical evidence. Special attention will be given to a competitive retrenchment and an erosion of advanced welfare states.

Given the complex nature of Ezoneplus, the different strands of analysis will be integrated carefully on the basis of an accurate description of data and methodologies applied.
Using quantitative and qualitative methods of several academic disciplines, the project is highly innovative in quite a few aspects. However, this research strategy also involves some risks concerning consistency, contingency and feasibility.
Taking these considerations into account, theoretical approaches and empirical analyses are cautiously designed. Research will focus on macro-theoretical and macro-empirical analysis within a framework of modern political economy.
In order to ensuring consistency, this framework is applied to the study of economic impacts of political decisions as well as the challenges for the decision-making process. It is based on the assumption of rational decision-making and principle-agent-links.
According to the issues at stake, political and economic decisions are linked via institutions, which will be sorted out in an appropriate way. Markets and political institutions will be at the centre of the mechanism by which different interests are balanced and decisions brought to equilibrium. This framework will help to model the macroeconomic and macro-political adjustment process in an empirically testable way.
Traditional and more sophisticated statistical methods will be used to analyse data on the basis of models that will in part be highly formalised.

Research intends to use empirical studies to illustrate some findings and results especially with regard to regions and nations. Quite some part of the project is devoted to the regional input for the macro(European)-model and to highlight national and regional specifics of markets, institutions, the political decision-making process, and social aspirations, conflicts and attitudes. This will also be done in a comparative way. Methodology will reflect the fact that national peculiarities count and have to be respected with regard to their impact on the enlargement process.