The Problem of Asymmetry in Euro Area Enlargement
Volume 6, Issue 1 (2008), pp. 125–152
Pub. online: 18 November 2008
Type: Article
Open Access
Open Access
Published
18 November 2008
18 November 2008
Abstract
In May 2006, the European Commission and European Central Bank assessed, at the request of Lithuania, the convergence progress of the Republic of Lithuania and stated that the country fails to meet the convergence criterion for price stability. Thus, the country had to abandon the plans to join the euro area membership from early 2007. The reason for the negative assessment was that the annual average inflation rate in Lithuania measured as the Harmonised Index of Consumer Prices (HICP) was just slightly above the reference value of criterion for price stability defined in the Maastricht Treaty. Such a decision revealed some problems and new features of the euro area enlargement, which were not observed while creating the euro zone. This drew the attention of many economists and political experts of the European Union, which led to in-depth discussions on various issues of the euro area enlargement.
The authors suggest the hypothesis that the asymmetry in the actual convergence level and political power of the states, which is much higher than that while creating the euro area, results in uncertainty as to the enlargement with respect to some countries. This article aims to discuss the major problems in relation to the current euro area enlargement process and their consequences. At the outset, the authors analyze the features of the asymmetry of the euro area enlargement and political economy highlighting their essential differences at the time of the creation of the euro area and now. Then, they present the analysis of the institutional framework of the euro area enlargement, which was formed after the largest ever number of new states altogether entered the European Union in 2004, and considers the efficiency of the Exchange Rate Mechanism (ERM) II. Furthermore, the article deals with various aspects of the Lithuanian request to assess the convergence progress in anticipation of the positive result and analyses the reasons for and consequences of postponing the expectations for the euro adoption. Finally, it presents general conclusions and proposals as to how the asymmetry matters should be tackled with in pursuit of seamless enlargement of the euro area.