Ezoneplus Research Project
The specific objectives
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.
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
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
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.
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
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.