Are the New EU Countries Ready for the EURO? A Comparison of Costs and Benefits

Abstract

This paper examines the main macroeconomic determinants of costs and benefits of adopting the euro for the new EU member countries, and compares them to those of the older members. We show that these cost and benefit factors exhibit substantial variability across the countries considered. Our findings suggest that, in terms of price stability, the position of the new members is overall better than some EMU countries, such as Portugal and Greece. At the same time, we identify countries (such as Slovenia, Cyprus, and Hungary) whose business cycle is already well synchronized with EMU's, but also countries (such as Latvia and Estonia) with lower synchronization, and countries (such as Romania, Turkey, and Croatia) with systematically negative correlations.