Report

The case for reforming euro area entry criteria

Publishing date
15 December 2010
Authors
Zsolt Darvas

The global economic and financial crisis has raised questions on the topic of the euro-entry criteria and the tightening of criteria in that regard, as a result of the EU being enlarged from 12 to 27 members. Other topics of concern are the very unfavourable property of business cycle dependence, the internal inconsistency of the criteria due to the structural price level convergence of Central and Eastern European countries, and the continuous violation of the criteria by euro-area members. The interest rate criterion have also become a highly volatile measure. Many US metropolitan areas would fail to qualify as members of the US monetary union if the currently used inflation criterion was applied to the US. In order is a reform of the criteria, as well as the strengthening of their economic rationale within the legal framework of the EU treaty. A reasonable solution would be to relate all numerical criteria to the average of the euro area, while applying a simultaneous extension of the compliance period from the currently considered one year to something longer.

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