EMU Has Institutional Implications for Countries Aspiring to Join the European Union

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Economic and Monetary Union (EMU) has a number of institutional implications for the transition countries of Central and Eastern Europe (CEECs) and selected Mediterranean countries that aspire to join the European Union (EU). In IMF Working Paper 98/82, Selected Transition and Mediterranean Countries: An Institutional Primer on EMU and EU Relations, Heliodoro Temprano-Arroyo and Robert A. Feldman of the IMF's European I Department describe the current institutional framework for these countries' relations with the EU and examine two main types of institutional implications of EMU for countries with EU membership aspirations: those stemming from the need to satisfy the Maastricht convergence criteria before joining the euro area, and those stemming from the need to adopt the EU's institutional and legal provisions in the area of EMU. The latter include the need to establish fully independent central banks, the prohibition of central bank and other privileged government financing, and the liberalization of capital flows. Temprano-Arroyo and Feldman spoke with the IMF Survey about their study.

IMF Survey: What is the current institutional framework for relations between the European Union and the CEECs?

Feldman: Most CEECs are developing an increasingly close economic and political relationship with the EU. Since the fall of the Berlin Wall, the EU has concluded trade and cooperation agreements, and then association agreements with most CEECs. Association agreements (also known as Europe agreements) have as a fundamental objective the establishment of a free trade area in industrial products between the EU and the associated CEECs-that is, those CEECs with association agreements-but they are much more than trade agreements. They are seen as a stepping-stone toward future EU membership of the associated CEECs and cover a number of areas (such as political dialogue and harmonization of legislation) that cannot be properly understood without taking into account the perspective of membership. The EU accepted in 1993 the idea of an enlargement encompassing the associated CEECs and subsequently developed a "pre-accession strategy" aimed at intensifying economic and political dialogue with these countries and helping them adapt to the requirements of membership. Meanwhile, all the associated CEECs have formally applied for EU membership. This evolutionary process has...