- International Monetary Fund
- Published Date:
- April 2005
© 2005 International Monetary Fund
Production: IMF Multimedia Services Division
Figures: Theodore F. Peters, Jr.
Adopting the euro in Central Europe : challenges of the next step in European integration / Susan Schadler … [et al.]—Washington, D.C.: International Monetary Fund, 2005.
p. cm.—(Occasional paper, ISSN 0251-6365) ; 234
Includes bibliographical references.
1. Euro—Europe, Central. 2. Europe, Central—Economic integration. 3. Economic and Monetary Union. 4. Monetary policy—Europe, Central. I. Schadler, Susan. II. Occasional paper (International Monetary Fund) ; no. 234
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The following conventions are used in this paper:
… to indicate that data are not available or not applicable;
— to indicate that the figure is zero or less than half the final digit shown;
– between years or months (for example, 1991–92 or January–June) to indicate the years or months covered, including the beginning and ending years or months;
/ between years or months (for example, 1991/92) to indicate a fiscal or financial year.
“Billion” means a thousand million; “trillion” means a thousand billion.
“Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
Minor discrepancies between constituent figures and totals are due to rounding.
The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.
Upon entry into the European Union (EU), countries become members of the Economic and Monetary Union (EMU) with a derogation from adopting the euro as their currency (that is, each country joining the EU commits to replace its national currency with the euro, but can choose when to request permission to do so). For most of these countries, adopting the euro will entail major economic changes. This paper examines likely economic developments and policy challenges for the five former transition countries in central Europe—the Czech Republic, Hungary, Poland, the Slovak Republic, and Slovenia—that joined the EU in May 2004, operated independent monetary policies, but had not yet achieved policy convergence with the rest of the euro area by that time.
This study was prepared by a team led by Susan Schadler and consisting of Paulo Drummond, Louis Kuijs, Zuzana Murgasova, and Rachel van Elkan. The study has benefited from comments by various departments of the IMF; staff of the European Central Bank (ECB) and the European Commission (EC); participants in a conference on Euro Adoption in Prague in February 2004; and seminars at the National Bank of Poland, Czech National Bank, and Magyar Nemzeti Bank. Material presented in this study was originally prepared as background for an IMF Executive Board seminar on euro adoption in February 2004. The cutoff date for data revision was April 2004. Since that date, revisions to data for Greece, in particular, were significant and could influence the conclusions of parts of the study.
The authors are particularly grateful to Indra Mahadewa, Socorro Santayana, and Jocelyn Rivera for processing the original text; to Jolanta Stefanska and Jehan Panthaki for excellent research assistance; and to Jim McEuen of the External Relations Department, who edited the paper and coordinated the production of the publication. The views in the paper are those of the authors and do not necessarily reflect the views of national authorities or IMF Executive Directors.
Analysis of variance
Bank credit to the private sector
Behavioral equilibrium exchange rate
Bank for International Settlements
Common Agricultural Policy (EU)
Central European country
CECs minus Hungary
Consumer price index
Cumulated sum of recursive residuals
European Commission (EU)
European Central Bank (EU)
Council of Economics and Finance Ministers of the EU
Economic and Financial Committee (EU)
Economic and Monetary Union (EU)
Exchange Rate Mechanism (EU)
European System of Accounts 1995 (Eurostat, 1996)
Statistical Office of the European Communities (EU)
Foreign direct investment
Fundamental equilibrium exchange rate
Fundamental real exchange rate
Financial Sector Assessment Program (IMF–World Bank)
Financial System Stability Assessment (IMF)
Gross domestic product
Global Economic Model (IMF)
Government Finance Statistics (IMF)
Government Finance Statistics Manual 2001 (IMF, 2001)
Generalized least squares
Generalized matrix of moments
International investment position
Impulse response function
Multiregion Macroeconomic Model (IMF)
Natural real exchange rate
Optimum currency area
Organization for Economic Cooperation and Development
Ordinary least squares
Pay as you go
Purchasing power parity
Real effective exchange rate
Real exchange rate
Stability and Growth Pact (EU)
Standard International Trade Classification
System of National Accounts 1993 (EC and others, 1993)
Taylor efficiency frontier
Total factor productivity
Unit labor costs
United Nations Development Program
Vector error correction model
Very short-term financing facility (ECB)
World Economic Outlook (IMF)