A Symmetric Shock with Asymmetric Implications for Eurozone Member Countries

Thursday, 25 March 2010: 10:00
Hilton Prague
Lubor Lacina, Ph.D. , Faculty of Business Economics, Department of Finance, Mendel University, Czech Republic, Brno, Czech Republic
JEL category:

G01 – Financial Crises, F15     - Economic Integration, E42 Monetary Integration, F34 - International Lending and Debt Problem, F42 - International Policy Coordination and Transmission

Author:

doc. Ing. Lubor Lacina, Ph.D. (Jean Monnet Chair in European Economic Studies)

Institution:

Mendel University, Faculty of Business Economics, department of finance, the Czech Republic

Keywords:

eurozone, economic growth, divergence, financial crisis, symmetric shock, asymmetric shock

Background - hypothesis:

Objectives:

The objective of the paper is not simply to assess the initial experience, however, but rather to attempt to identify possible scenarios for the future development of the eurozone. The financial and economic crisis which has been negatively impacting the macroeconomic development of the majority of European economies so strongly since mid-2008 represents the first real stability test for the monetary union. The purpose of this paper is thus to answer the question about the condition the economic and monetary union will be in when the economic crisis has ended.

 

Data/Methods:

Sources of data: Eurostat. Method: Impulse-Response Analysis.

Expected Results:

Provide information about the nature of the grouping to which the eurozone candidate countries will be applying for membership in the future.[1]. In deciding on the timing for entry of the candidate countries into the economic and monetary union, political leaders should take into account the experience countries in the eurozone have had to this point, along with anticipated scenarios for eurozone development.

 

Contact person

Lubor Lacina

Mendel University of Agriculture and Forestry

Faculty of Business Economics

Department of Finance

Zemedelska 1

613 00 BRNO

Czech Republic

email: lacina@mendelu.cz



[1] Here attention must be called to two facts. The CR is not in the situation of the United Kingdom of Great Britain and Northern Ireland or Denmark, both of which have negotiated permanent exceptions from participation in the economic and monetary union. In signing the contract to become a full member of the EU, the CR promised that it would seek membership in the eurozone and take all steps necessary to fulfill the membership criteria. In contrast to the countries noted above, then, the CR cannot spend a long period of time deliberating whether or not to become a member without risking sanctions from the EU. On the other hand, it should be noted that simply fulfilling the so-called Maastricht criteria is not enough to guarantee automatic entry to the group of countries using the euro as a single currency. Entry requires unilateral agreement from representatives of all EU member states, who may also take into account factors other than fulfillment of the convergence criteria in making their decision. The economic and monetary union project has been political since its inception with the Maastricht Treaty in 1992. With each expansion, however, the existing member countries base their decision-making process for expansion of the eurozone on a range of factors in addition to economic criteria (the existing economic situation among members of the eurozone, whether they are convinced that the candidate country will continue to fulfill the criteria after entry to the eurozone, etc.). The same conclusion also applies to decisionmaking by the candidate countries themselves