Köhler calls for new European Union members to strengthen policies before adopting euro

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While Europe continues to possess significant economic strengths- including good public infrastructure, a well-educated workforce, and high domestic saving rates-many of its economies have underperformed in recent years compared, for instance, with hubs in Asia, where growth has outpaced Europe by 5 percentage points a year over the past decade, Köhler said. Europe needs to accelerate implementation of structural reforms, especially in its labor and product markets, to ensure that it can take full advantage of its large internal market and compete in the global economy.

Unlike the United Kingdom and Denmark, which have permanent opt-out clauses, the 10 accession countries are all committed to eventually adopting the euro as their national currency. Joining the common currency will deliver a significant boost to economic development through increased trade and financial flows by lowering transaction costs and Page 34eliminating market risks, Köhler said. A forthcoming study by IMF staff suggests that, over the long term, euro adoption could raise GDP by as much as 20-25 percent in most Central European countries.

But these gains are not automatic, according to Köhler. The loss of the monetary policy instrument after euro adoption will shift the burden of adjustment to other...