Enlargement of the EU and of the European Monetary Union by mikeholy

VIEWS: 82 PAGES: 54

									Enlargement of the EU and of the
                             th
   European Monetary Union



                    –   Final Project Report –

efan DETSCHER - Carlos MATOSO - Alexander REGELMANN - Francisco RHODE


                        INTERNATIONAL FINANCE

              CERAM, Sophia Antipolis, Autumn Semester 2002
                                                              22.11.2002
                                                                 Enlargement of the EU and of
                                                                 the European Monetary Union



        Project‘s objective


        Special Focus:

                International financial impacts on the candidate countries
                Financing of the enlargement
                Consequences for the EMU and the Euro currency


        Key Question:

        Does the enlargement make sense under international financial aspects?




Semester 2002
                                                      Enlargement of the EU and of
                                                      the European Monetary Union



        Project Contents


        1. EU/EMU in General

        2. Maastricht Criteria + Convergence

        3. Impacts on Candidate Countries

        4. How to finance Enlargement

        5. Monetary Policy Aspects of the Enlargement of the EMU

        6. € Stability/ Exchange Rates

        7. Conclusion




Semester 2002
                                                              Enlargement of the EU and of
                                                              the European Monetary Union



        AGENDA

        1. EU/EMU in General + Accession Scenarios

        2. Maastricht Criteria + Convergence

        3. Impacts on Candidate Countries

        4. How to finance Enlargement

        5. Monetary Policy Aspects of the Enlargement of the EMU

        6. € Stability/ Exchange Rates

        7. Conclusion



Semester 2002
                                                                      Enlargement of the EU and of
                                                                      the European Monetary Union



        European Monetary Union - Members

        Starting date:              1 January 1999


        Founding Members:           France, Germany, Italy, Spain, Netherlands,
                                    Belgium, Austria, Portugal, Irland,
                                    Finland,Luxembourg


        Later Entrant:              Greece (1 January 2001)


        Non-participants:           UK, Sweden, Denmark




Semester 2002               1.   EU/EMU in General + Accession Scenarios
                                                                      Enlargement of the EU and of
                                                                      the European Monetary Union



        Candidate Countries

        10 candidates entering date announced:
        Poland, Hungary, Czech Republic,
        Slovakia, Estonia, Latvia, Lithuania,
        Slovenia, Cyprus, Malte


        2 candidates entering later:

        Bulgaria, Romania


        1 candidate without
        projected entering date:

        Turkey


Semester 2002               1.   EU/EMU in General + Accession Scenarios
                                                                         Enlargement of the EU and of
                                                                         the European Monetary Union



        Accession Scenarios

        Two assumed scenarios of EU enlargement process:

        1.) Baseline Scenario (75%): Large Convoy in 2004/2005
        Eight Eastern European countries join EU in 2004/2005: Hungary,
        Slovenia, Poland, Czech Republic, Slovakia, Estonia, Latvia, Lithuania
        (plus Malta and Cyprus).




       Source: Deutsche Bank


Semester 2002                  1.   EU/EMU in General + Accession Scenarios
                                                                          Enlargement of the EU and of
                                                                          the European Monetary Union



        Accession Scenarios

        2.) Alternative Scenario (25%): Small Convoys

                Because of heterogeneous progress in preparations on part of the
                accession countries and/or lacking readiness to enlarge on part of the
                EU, the candidates join in different groups

                Hungary, Slovenia, the Czech Republic and Estonia join in 2004,
                Poland, Slovakia, Latvia and Lithuania not before 2006




       Source: Deutsche Bank

Semester 2002                   1.   EU/EMU in General + Accession Scenarios
                                                              Enlargement of the EU and of
                                                              the European Monetary Union



        AGENDA

        1. EU/EMU in General + Accession Scenarios


        2. Maastricht Criteria + Convergence

        3. Impacts on Candidate Countries

        4. How to finance Enlargement

        5. Monetary Policy Aspects of the Enlargement of the EMU

        6. € Stability/ Exchange Rates

        7. Conclusion



Semester 2002
                                                                      Enlargement of the EU and of
                                                                      the European Monetary Union



        Maastricht Criteria (1998)

        1. Price Stability
           maximal 1,5% above average of three most price stable EU members over
           the preceding 12 month before convergence assessment
        2. Exchange Rate Stability
           participation in Exchange Rate Mechanism (ERM II) during at least 2 years
           before convergence assessment without severe tensions, especially without
           unilateral devaluation by a member country
        3. Interest Rates 10y Bonds
           maximal 2% above average of three best performing EU members
        4. Public Deficit
           maximal 3% of GDP per year
        5. Public Debt
           maximal 60% of GDP


Semester 2002                2.   Maastricht Criteria + Convergence
                                                                          Enlargement of the EU and of
                                                                          the European Monetary Union



        Maastricht Criteria Convergence




         Source: Deutsche Bank


        Current Reference Value: 3,2% ( = 1.7% + 1.5% )

Semester 2002                    2.   Maastricht Criteria + Convergence
                                                                           Enlargement of the EU and of
                                                                           the European Monetary Union



        Structural Convergence - Convergence Webs

            The webs illustrate the structural economic development of the candidate
            countries measured against the EU average
            The level of structural convergence is assessed on the basis of 16
            indicators
            The strengths and weaknesses of each country can be recognised at a
            glance




          Source: Deutsche Bank



Semester 2002                     2.   Maastricht Criteria + Convergence
                                                                        Enlargement of the EU and of
                                                                        the European Monetary Union



        Structural Convergence – „Best-In-Class“ Countries




       Source: Deutsche Bank



Semester 2002                  2.   Maastricht Criteria + Convergence
                                                                          Enlargement of the EU and of
                                                                          the European Monetary Union



        Structural Convergence – „Best-In-Class“ Countries




         Source: Deutsche Bank


Semester 2002                    2.   Maastricht Criteria + Convergence
                                                                        Enlargement of the EU and of
                                                                        the European Monetary Union



    Structural Convergence – „Medium-Convergence“ Countri




       Source: Deutsche Bank



Semester 2002                  2.   Maastricht Criteria + Convergence
                                                                          Enlargement of the EU and of
                                                                          the European Monetary Union



    Structural Convergence – „Medium-Convergence“ Countri




         Source: Deutsche Bank


Semester 2002                    2.   Maastricht Criteria + Convergence
                                                                        Enlargement of the EU and of
                                                                        the European Monetary Union



        Structural Convergence – „Worst-In-Class“ Countries




       Source: Deutsche Bank



Semester 2002                  2.   Maastricht Criteria + Convergence
                                                                        Enlargement of the EU and of
                                                                        the European Monetary Union



        Convergence - Analysis

                                               2002: Progress in difficult environment


                                                  Slovenia, the Czech Republic, Hungary
                                                  and Estonia have highest level of
                                                  convergence
                                                  Slovakia and Latvia follow with
                                                  convergence values at around 70% of
                                                  the EU average
                                                  Bulgaria and Romania have great need
                                                  for catch-up, but show remarkable
                                                  growth rates due to successful reform
                                                  policy


       Source: Dresdner Bank


Semester 2002                  2.   Maastricht Criteria + Convergence
                                                              Enlargement of the EU and of
                                                              the European Monetary Union



        AGENDA

        1. EU/EMU in General + Accession Scenarios


        2. Maastricht Criteria + Convergence

        3. Impacts on Candidate Countries

        4. How to finance Enlargement

        5. Monetary Policy Aspects of the Enlargement of the EMU

        6. € Stability/ Exchange Rates

        7. Conclusion



Semester 2002
                                                                       Enlargement of the EU and of
                                                                       the European Monetary Union



        Low price stability in CEE

            Inflation rate, %




         Source: Dresdner Bank

        Current Reference Value: 3,2% ( = 1.7% + 1.5% )
Semester 2002                    3.   Impacts on Candidate Countries
                                                                     Enlargement of the EU and of
                                                                     the European Monetary Union



        Large wealth gap between EU-15 and different candidate

        Nominal GDP per capita (2000) in Euro                 Economic asymmetry in an
                                                              enlarged EU – based on % GDP


                                                                        Candidate countries
                                                                              5%




                                                                         EU-15
                                                                         countries
                                                                               95%




Semester 2002                  3.   Impacts on Candidate Countries
                                                                     Enlargement of the EU and of
                                                                     the European Monetary Union



        Foreign Trade of CEE = Trade Balance

        History:     Change of main trading partner: EU indeed of Russia

        Status Quo: Strong export figures of CEE since 1990

        Problem:     Often only export of price sensible products

        Solution:    Structural reforms for being able to compete with higher
                     technological and higher quality products

        Measures:    FDI from EU-15 countries and the US
                     Development of local management structures
                     Structural change in agricultural sector and in textile industry

        Objective:   Higher level of value creation in production processes



Semester 2002                  3.   Impacts on Candidate Countries
                                                                        Enlargement of the EU and of
                                                                        the European Monetary Union



        High current account balance deficits of CEE
        Current Account Balance Deficits
                                % of GDP
        Bulgaria                                 Current account balance deficits of CEE in
        Estonia                                  2001 between 3% and 7% of GDP
        Latvia
                                                 Absorption approach: Y – A = X - M
        Lithuania
                                                 high consumption quota and
        Poland
                                                 low savings quota
        Romania
                                                 ⇒ higher absorption than production
        Slovakia
                                                 ⇒ higher imports necessary to cover demand
        Slovenia

        Czech
                                                 ⇒ import excess
        Republic
                                                 ⇒ Trade balance deficit
        Hungary
                                                 ⇒ CAB deficit
        Source: Dresdner Bank


Semester 2002                     3.   Impacts on Candidate Countries
                                                                        Enlargement of the EU and of
                                                                        the European Monetary Union



        Financing of CAB deficits through FDI

        Best solution because
          no additonal foreign
           debts
          Improvement of future
           growth perspectives
           through capital and
           technology transfer

        Necessary action:
        → privatization and
          deregulation

        RISK:
        Weakening of FDI when
        large privatization projects
        are finalized


Semester 2002                    3.    Impacts on Candidate Countries
                                                                       Enlargement of the EU and of
                                                                       the European Monetary Union



        Up to now weak Portfolio investments

            Main Reasons:
            a) still instable markets
            b) partly stock exchanges
               under development
            Strong Emerging Markets:
            Estonia, Hungary and Czech
            Republic
            Positive Outlook for Bond
            Market because of
            a) falling interest rates
               through convergence
               phantasy
            b) good ratings because of
               low level of foreign debt
                                              CHANCE: building up own capital stock
               of CEE
                                              RISK:         more volatile capital account
Semester 2002                    3.   Impacts on Candidate Countries
                                                                    Enlargement of the EU and of
                                                                    the European Monetary Union



        Trend: Accelerated Development of Candidate Countries

         GDP:                      dynamic GDP growth
                                   ⇒ increased convergence with EU-15

         Inflation:                better price stability through
                                   continuous structural reforms

         Foreign Trade:            no further export boom of CEE because of
                                   decreasing wage level difference to EU-15

         FDI:                      decreasing FDI because of finished
                                   privatisation projects

         Portfolio Investments:    more portfolio investments because of further
                                   developing financial intermediary systems and
                                   improving structural environment


Semester 2002                 3.   Impacts on Candidate Countries
                                                              Enlargement of the EU and of
                                                              the European Monetary Union



        AGENDA

        1. EU/EMU in General + Accession Scenarios


        2. Maastricht Criterias + Convergence

        3. Impacts on Candidate Countries

        4. How to finance Enlargement

        5. Monetary Policy Aspects of the Enlargement of the EMU

        6. € Stability/ Exchange Rates

        7. Conclusion



Semester 2002
                                            Enlargement of the EU and of
                                            the European Monetary Union



        Indicators of previous EU Enlargements




         Source: Deutsche Bank




Semester 2002
                                                        Enlargement of the EU and of
                                                        the European Monetary Union



        Who pays for the enlargement ?

        Net contributor/ recipient position of EU-15 countries in € bn




Semester 2002
                                         Enlargement of the EU and of
                                         the European Monetary Union



        What the Enlargement will cost
       (All figures in million euro)




        Source: Agenda 2000

Semester 2002
                                                                Enlargement of the EU and of
                                                                the European Monetary Union


        Commission proposal for the financing of enlargement
         “Common Financial Framework 2004-2006 for the Accession Negotiations”
         (European Commission, Information Note January 2000). Main points:

         1. Agriculture:
            Fully integration of the new members in all market support schemes
            Direct payments to farmers in the new member states are increased in steps
            to 35% (2006) of the present support level (approx. euro 2.6 bn by 2006).
            50% more per capita for rural development for new members

         2. Regional Aid:
            “Phasing-in”:
            At the end of the transition phase:Total aid for new members equivalent to 2.5
            of their GDP (existing cohesion countries receive 1.6%)


         In total, all the payment appropriations to the new members will rise from
         8.9 bn euro in 2004 to 14.2 bn euro in 2006 !

Semester 2002
                                                                     Enlargement of the EU and of
                                                                     the European Monetary Union



        Financing procedure and costs of the enlargement

        Contributions of EU 15:
                Total appropriations for the enlargement: 4.1 bn € (02) -14.2 bn€ (06)
                Equal market related subsidies for farmers


        Obligations for the candidates:
                Participation in structural funds to catch up differences in econonmic
                standards.
                Contributions to the EU-budget and “entrance fees” to EU bodies.
                Consolidation of administrative capacities and infrastructure.




Semester 2002
                                                            Enlargement of the EU and of
                                                            the European Monetary Union



        AGENDA

         1. EU/EMU in General + Accession Scenarios


         2. Maastricht Criterias + Convergence

         3. Impacts on Candidate Countries

         4. How to finance Enlargement

         5. Monetary Policy Aspects of the Enlargement of the EMU

         6. € Stability/ Exchange Rates

         7. Conclusion



Semester 2002
                                                                            Enlargement of the EU and of
                                                                            the European Monetary Union



        The Balassa Samuelson Effect - Introduction
        When discussing the monetary impacts of
        the EU-Enlargement there are often fears
        of a uncontrollable increase in inflation
        for the total European Union.

        Those fears are generally based on the
        Balassa-Samuelson-Model

        The Balassa-Samuelson-Effect states
        that an increase in prices are the
        consequence of different productivity
        advances in two sectors:

           The tradable (exportable) goods’
           sector
           The non-tradable goods’ sector
                                                           Source: Deutsche Bank


Semester 2002         5.   Monetary Policy Aspects of the Enlargement of the EMU
                                                                                Enlargement of the EU and of
                                                                                the European Monetary Union



        The Balassa Samuelson Effect – Introduction (cont.)

        Two sectors:

                The tradable goods sector

        As long as PPP holds for the traded
        goods      prices, an increase in
        productivity in this sector will not
        influence their price. Instead, in the case
        of fixed exchange rates, or a monetary
        union, nominal wages will rise.

                The non-tradable goods’ sector

        If wages develop similarly in the whole
        economy , non-traded goods’ prices will
        increase    and   therefore     become
        relatively more expensive.”
                                                              Source: Deutsche Bank


Semester 2002            5.   Monetary Policy Aspects of the Enlargement of the EMU
                                                                        Enlargement of the EU and of
                                                                        the European Monetary Union



        The Balassa Samuelson Effect - Assumptions

        (1) The economy produces traded and non-traded goods.

        (2) The supply side can be approximated by two (different) production functions,
            in which capital and labour are used as inputs and which are characterized
            by constant returns to scale.

        (3) Purchasing Power Parity holds for the traded goods: their prices are
            therefore given exogenously. => exogenously given

        (4) Capital markets are integrated and the interest rate is thus determined in the
            world => exogenously given

        (5) Capital stock is fixed in the short run => exogenously given

        (6) The labour market is homogeneous within the economy. Wages in the traded
            goods sector are determined by the marginal product, and these wages hold
            also for the non-traded goods sector => Total labour mobility in the economy.

Semester 2002         5.   Monetary Policy Aspects of the Enlargement of the EMU
                                                                         Enlargement of the EU and of
                                                                         the European Monetary Union



        The Balassa Samuelson Effect - Calculation

        Two sectors have to be distinguished:

        a) Tradable goods:

        Profit – Function: P       = AT F(CT, LT) – w LT – r CT

        - modified:         P/ LT = AT f(cT) – w – r cT                whereas cT =CT / LT


        b) Non- tradable goods:

        Profit – Function: P        = p AN G(CN, LN) – w LN – r CN

        - modified:         P/ LN = p AN g(cN) – w – r c N            whereas cN = CN / LN

        A = Productivity; L= Labor; w= Wages; r= interest rate; C = Capital
        p= price of a non-tradable good in units of a tradable one


Semester 2002          5.   Monetary Policy Aspects of the Enlargement of the EMU
                                                                            Enlargement of the EU and of
                                                                            the European Monetary Union



        The Balassa Samuelson Effect – Calculation (cont.)

        Set to zero and rearrange modified Profit Functions:
        AT f(cT)       = r cT + w (1)                       tradable goods’ sector

        p AN g(cN) = r c N+ w (2)                           non-tradable goods’ sector

        After Logarithm and total Differentiation (derive to AT (AN), cT(c N), p and
        w):
        ∆ AT = µLT ∆w                        (from 1)
        ∆p + ∆ A N = µLN ∆w                  (from 2)       whereas µL,i= w Li / Yi


        ∆ AT = growth rate of productivity for tradable goods
        ∆ A N = growth rate of productivity for non-tradable goods
        ∆w = growth rate of wages
        µL,i    = ratio between sum of wages and Output in sector i
        ∆p      = growth rate of prices of non-tradable goods


Semester 2002             5.   Monetary Policy Aspects of the Enlargement of the EMU
                                                                            Enlargement of the EU and of
                                                                            the European Monetary Union



        The Balassa Samuelson Effect - Calculation (cont.)


              µLN
        ∆p = ___ ∆ AT – ∆ A N                    ∆p = Increase in prices in service sector
                  µLT
                                                 ∆ A = Productivity advance
                                                 µL  = Labor intensity


                So if µLN > µLT a higher productivity advance in the tradable goods’ sector
                leads to higher prices in the non-tradable goods’ sector


                The increase in prices is the higher the larger the share of labor in the non-
                tradable goods’ sector is relative to the share of labor in the tradable goods’
                sector




Semester 2002             5.   Monetary Policy Aspects of the Enlargement of the EMU
                                                                         Enlargement of the EU and of
                                                                         the European Monetary Union



        The Balassa Samuelson Effect - Example


                 µLN                         ∆A      = Productivity Advance
                ____
          ∆p= µLT ∆AT – ∆AN                  µL      = Labor Intensity
                                             ∆p      = Increase in prices for services

        Labor intensity is always defined as total wages (wages x employees) divided by
        the total output in the concerned sector.

        Ex: Assume a labor intensity in the service sector of 0.4 and a labor in-
        tensity of 0.35 in the tradable goods’ sector. Productivity grows by 5%
        in the tradable good sector, there is no advance in the service sector.
        0.4/0.35 x 5% - 0% = 5.71 %            (increase in prices for services)

        In this case, prices for non-tradable goods will increase by 5.7 % if there is
        no productivity advance in the service sector. The overall inflation for the
        concerned country strongly depends on the weight of the service sector in
        the economy.

Semester 2002          5.   Monetary Policy Aspects of the Enlargement of the EMU
                                                                      Enlargement of the EU and of
                                                                      the European Monetary Union



        The Balassa Samuelson Effect – Possible scenario


        T-Sector                                 Increase
                                                                                   Price Stabilit
                                             in Productivity
                         Competition,
                         Open Markets


        EU-Enlargement                                           Rising Wages



                                             NO Increase
                                                                                        Inflation
                                            in Productivity

       NT-Sector                                                                 Unemploymen
                                                                                 Social Instabilit
                                                                                        Instabili

Semester 2002      5.    Monetary Policy Aspects of the Enlargement of the EMU
                                                                            Enlargement of the EU and of
                                                                            the European Monetary Union



        The Balassa Samuelson Effect - Results


                High productivity advances in the Eastern European Countries are
                expected after the enlargement as a consequence of increased
                competition and liberty.

                Since this productivity advance only concerns the tradable goods‘
                sector overall rising wages will cause high inflation rates in these
                countries.

                The increase in prices in the sector of non-tradable goods will cause
                higher unemployment in Eastern Europe (normal price elasticity
                assumed). These negative employment effects mainly concern
                services or agriculture.




Semester 2002             5.   Monetary Policy Aspects of the Enlargement of the EMU
                                                              Enlargement of the EU and of
                                                              the European Monetary Union



        AGENDA

        1. EU/EMU in General + Accession Scenarios


        2. Maastricht Criterias + Convergence

        3. Impacts on Candidate Countries

        4. How to finance Enlargement

        5. Monetary Policy Aspects of the Enlargement of the EMU

        6. € Stability/ Exchange Rates

        7. Conclusion



Semester 2002
                                                                 Enlargement of the EU and of
                                                                 the European Monetary Union


       Currency regimes and exchange rates of the candidates
       (European Exchange Rate Mechanismen II)




       Source: Deutsche Bank

Semester 2002                  6.   € Stability/ Exchange Rate
                                                                       Enlargement of the EU and of
                                                                       the European Monetary Union



        Fears: The impact of the enlargement on the Euro

        The EU enlargement is very often criticized as a risky project which may
        destabilize the Euro and therefore the whole EMU because of the following
        reasons:

                An as unclear perceived enlargement process

                An anxiety about the monetary and economic stability of an
                enlarged European Union

                Structural divergences between the candidate countries and the
                EMU

                A lack of political transparency within the EU


                        Are these fears justified ?



Semester 2002                        6.   € Stability/ Exchange Rate
                                                                    Enlargement of the EU and of
                                                                    the European Monetary Union



        Is the Enlargement Process clear and transparent ?

         Steps in the enlargement process:

         At least 3 years             Maastricht criteria           Permanent control

         between EU accession     The convergence pro-      of the economic policy
         and EMU membership...    gress of each new mem- of the new members by
                                  ber country decides how the EU commission …
                                  long it must wait to join
                                  the EMU …




                            There is enough time to prepare for the EU
                            and EMU enlargement.

Semester 2002                    6.    € Stability/ Exchange Rate
                                                                   Enlargement of the EU and of
                                                                   the European Monetary Union



        Economic divergences – a source of risk ?

         Real economic divergences are mostly pointed out as the main problem
         when talking about possible difficulties of the enlargement. Two
         arguments:

         Problem :      Different GDP growth rates


         Answer:

                        The convergence criteria help to limit the impact of
                        different economic cycles within the EU. Different
                        economic developments have to be beard by the
                        individual member states since the monetary po-
                        licy of the ECB concerns the price stability of
                        the whole Union.


Semester 2002                    6.   € Stability/ Exchange Rate
                                                              Enlargement of the EU and of
                                                              the European Monetary Union



        Economic divergences – a source of risk ? (II)


        Problem:   Low income level in candidate countries will require high
                   transfer payments


        Answer:


                   Experience shows that lower income levels are no
                   obstacle for a successful participation in the EU
                   and the EMU (e.g. Greece, Portugal). Because
                   of the pressure of the strong EU-members
                   a significant increase in transfer payments
                   is not very likely.



Semester 2002               6.   € Stability/ Exchange Rate
                                                                      Enlargement of the EU and of
                                                                      the European Monetary Union



        Further aspects concerning the Euro stability


        Investments:                     Positive impacts on the exchange rate because
                                         of new attractive possibilities for FDIs and port-
                                         folio investments.


        Economy of candidates:           Low economic weight of the candidate
                                         countries


        Institutional paralyzing:        Institutional reforms are necessary to prevent
                                         the paralyzing of political decision processes
                                         (EU convent in Laeken, Finland)




Semester 2002                       6.   € Stability/ Exchange Rate
                                                              Enlargement of the EU and of
                                                              the European Monetary Union



        Answers: The impact of the enlargement on the Euro


                 The enlargement process is well defined; the
                 EMU participation is obligatory


                 ECB controls monetary stability


                 Maastricht criteria limit the negative impacts
                 of structural divergences


                 Institutional reforms are essential and have to
                 be continued



Semester 2002               6.   € Stability/ Exchange Rate
                                                           Enlargement of the EU and of
                                                           the European Monetary Union



        AGENDA

        1. EU/EMU in General + Accession Scenarios

        2. Maastricht Criteria + Convergence

        3. Impacts on Candidate Countries

        4. How to finance Enlargement

        5. Monetary Policy Aspects of the Enlargement of the EMU

        6. € Stability/ Exchange Rates

        7. Conclusion

Semester 2002
                                                           Enlargement of the EU and of
                                                           the European Monetary Union



   Chances-Risks Analysis of EU/ EMU Enlargement
                CHANCES                                          RISKS

       Larger European domestic
       market                                            Discrepencies between
                                                         expectations of people in
       More investment possiblities                      Western and Eastern
       with lower transaction costs                      European Countries
       Higher economic growth                            Big differences between
       opportunities                                     income levels
       Higher political and                              Problems of work force
       econmical stability in Europe                     migration
       Higher international                              Euro stability
       recognition of EU
                                                         Problem of high subsidies
       Higher significance of
       stronger Euro as reserve,                         Inflation pressure
       trade and investment
       currency


Semester 2002                          7.   Conclusion
                                                                    Enlargement of the EU and of
                                                                    the European Monetary Union



   Conclusions and Recommendations

                              Harmonize structures in EU-15
                              and candidate countries

   Accelerate convergence
   process                                                  Enlargement will cost about €40b

   Reduce subsidies (especially                              Prepare institutions through
                                          EU / EMU
   agricultural subsidies)                                   reforms
                                         Enlargement
   Further deregulation and                                 Price level adoption of CEE caus
   privatization                                            higher inflation in enlarged EU

                               Euro stability is not in danger if
                               Maastricht criteria are observed

                RESULT: enlargement makes sense under international financial aspect

Semester 2002                             7.   Conclusion
Thank you for your
    attention !



                22.11.2002

								
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