The Euro: Future Prospects and Consideration for Non-Euro Countries

Abstract

Problem statement: Many more Central and Eastern European Countries (CEEC) have decided to adopt the euro. Given the attraction and uncertainties associated with moving into a common currency, the potential gains and losses of a currency adoption was of academic and political interest. The economic impact of implementing a common currency was examined by studying the before and after of those countries that have joined the currency union utilizing data from Eurostat.Approach: This preliminary research strengthened the hypothesis that currency unions improve macroeconomic indicators in countries that participate in them. There were several new European Union (EU) members from the CEEC region on the path of achieving the same currency adoption goals as the former group of countries. Using statistical and econometric methods, the economic benefits that accrue to these countries in the pipeline were examined. This study isolated recessions and country-specific differences for the purpose of isolating the impact of the convergence criteria. Results: The study suggested that six out of the eight countries are boosting their macroeconomic variables by adopting the criteria required to join the EU currency. This study helps promote the idea of currency unions for countries interested in such transitions. Conclusions/ Recommendations: The regression analysis showed the values of the examined countries’ coefficients were negative suggesting that as the candidate countries progressed in the compliance with the convergence criteria, they would encounter positive economic growth. Therefore, this study suggested that candidate countries should focus on exchange rates stability above other targets as they focus on joining the monetary union.