Friday, 16 March 2018: 10:30 AM
On 22 December 2009, Serbia formally applied for EU membership. The formal accession negotiations started in January 2014. If Serbia joins the EU, it will have to adopt the euro as legal tender as soon as it fulfils the relevant Maastricht criteria. By means of simulations with a macroeconometric model of the Serbian economy, this paper examines what macroeconomic effects can be expected from Serbia’s EU membership and from its membership in the Euro Area. Based on experiences with previous EU enlargement rounds, we assumed that Serbia will join the EU in 2020 and the Euro Area in 2023, and that EU accession will be beneficial for total factor productivity and exports in particular. In addition, Euro Area accession will change its monetary policy regime since the European Central Bank will also conduct monetary policy for Serbia. The simulations with the macroeconometric model show that EU accession and the introduction of the euro bring about higher real GDP and more employment, but also slightly higher inflation due to additional aggregate demand. Public finances are affected positively. The benefits of joining the Euro Area are mainly due to supply side effects, viz. productivity increases.
It should be mentioned that our assumptions regarding the initial impacts of EU and Euro Area accession are more or less arbitrary, but they are based on past experience in other countries. Furthermore, our model stresses the demand side, while the supply side comes into play mainly via potential GDP. Expectations are not forward looking in our model. Despite these limitations, the simulations could show that positive macroeconomic effects can be expected for Serbia once it joins the EU and the Euro Area.