The race for the euro: the central and eastern Europeans eagerly seek club membership. Here are the hurdles.

• Author: Stark, Jurgen
• Position: Institutions

The European Council in Copenhagen in 2002 was a historic milestone on the way to the enlargement of the European Union: Accession negotiations were concluded with ten new member states, most of which are from central and eastern Europe--Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic, and Slovenia. The successful conclusion of negotiations with these ten candidate countries also lends new dynamism to the accession of Bulgaria and Romania, which were offered the prospect of becoming members of the EU in 2007. It is envisaged that--once the Accession Treaty has been signed and the national ratification procedures completed-the ten new members will join the EU on May 1, 2004. This would allow them to participate in the 2004 European parliamentary elections.

Upon accession, the ten countries will join the European Economic and Monetary Union (EMU) as "member states with a derogation"; their central banks will become part of the European System of Central Banks. The new "member states with a derogation" will have to conduct exchange rate policy as a matter of common interest, which will exclude, for example, competitive devaluation. However, the hurdles of strengthening real and nominal convergence still have to be overcome before a country can adopt the euro and participate in the Eurosystem.

The EU enlargement negotiations began back in December 1997. Since that time the candidate countries have made considerable progress in the race to adopt the euro. The process involves several integrative steps which build on one another. Most of the accession countries were formerly communist states and have had to go through a deep process of transition in order to fulfill the criteria laid down by the 1993 European Council in Copenhagen. While the Copenhagen criteria regulate accession to the EU, they are also important for participation in the EMU. Furthermore, a high degree of sustainable convergence--a condition for the adoption of the euro---complements the political criteria relating to the integration process.

AMENDING CENTRAL BANK LEGISLATION

The Copenhagen criteria imply the existence of a functioning democracy guaranteeing human and minority rights (political criteria), the existence of a functioning market economy able to cope with competitive pressure and market forces in the internal EU market (economic criteria) and the ability to take on the obligations of membership, including adherence to the aims of political, economic, and...