Poland and the euro zone enlargement: Monetary policy, ERM II, and other issues

Abstract

In this paper, Poland's preparations

Monetary Challenges of Emerging European Economies Towards the Euro Zone

“…However, the detected vicious cycle between nominal and real convergence contradicts this approach in the pre-EMU stage. In this sense, other views presume the ERM II as a "waiting room" for entry into the euro zone rather than a "training room" (Polanski, 2004). Namely, it is difficult to carry out significant reforms and convergence to the EMU within the ERM II framework.…”

“…It is complicated to simultaneously target an ER and inflation under the ERM II target zone at the second stage of the monetary convergence. Numerous papers explored the unsustainability aspect of the ERM II in attaining the convergence criteria (Adahl, 2000;Begg, Eichengreen, Halpern, von Hagen, & Wyplosz, 2003;Fahrholz, 2003;Eijffinger, 2003;Issing, 2003;Polanski, 2004;Tchorek, 2017;etc.). The exclusive focus to inflation target (IT) bears the danger of constant restrictiveness with negative consequences to economic activity and employment, i.e.…”

“…Alongside the NER, Figure 1 reveals the years spent in identified stages of the monetary convergence. Slovenia spent three years (2004)(2005)(2006)(2007) in the second (pre-EMU) stage, Slovakia five years (2004)(2005)(2006)(2007)(2008)(2009), Estonia six years (2004( -2011( ), Latvia ten years (2004, and Lithuania eleven years (2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013)(2014)(2015).…”

“…Numerous papers investigate the nonsustainability of the ERM II as an intermediate ERR from the aspect of simultaneous realization of the ER and inflation target. The references show that simultaneous achievement of the nominal convergence (ER and inflation stability) and the real convergence (faster economic growth) is almost impossible (Adahl, 2000;Buiter & Grafe, 2002;De Broeck & Slok, 2002;Begg, Eichengreen, Halpern, von Hagen, & Wyplosz, 2003;Fahrholz, 2003;Eijffinger, 2003;Issing, 2003;De Grauwe & Schnabl, 2004;Polanski, 2004;Tchorek, 2017;etc. ).…”

“…The fiscal position, especially in the form of convergence criteria (budget deficit and public debt), largely determines the time of entry into the ERM II, as well as the length of the EMU accession phase. Although it sounds paradoxical, the entry of former transitional economies into the EMU is primarily conditioned by non-monetary factors (Polanski, 2004). Nominal convergence is increasingly dependent on the structural changes or the process of real convergence.…”