New EU states and the adoption of the Euro

Table of Contents

Introduction.......3

The Three Phases of Monetary Integration........4

ERM II......... 4

Maastricht Convergence Criteria.........6

Threats and Opportunities for the New States Joining the Euro.......8

Target Dates for Euro Adoption         9

The Convergence Issue         12

Real vs. Nominal Convergence         12

Conclusions         13

Bibliography         14

Appendix         15

        5-Year Perspective on the 10 States' Currencies against the Euro         15

        Cyprus Pound (CYP) foreign exchange rate         15

        Latvian Lats (lVl) foreign exchange rate         15

        Maltese Lira (MTL) foreign exchange rate         16

        Slovenian Tolar (SIT) foreign exchange rate         16

        Slovak Koruna (SKK) foreign exchange rate         17

        Lithuanian Litas (LTL) foreign exchange rates         17

        Estonian Kroon (EEK) foreign exchange rate         18

        Outside ERM II: Czech Koruna (CZK) foreign exchange rate         18

        Hungarian Forint (HUF) foreign exchange rate         19

        Polish Zloty (PLN) foreign exchange rate         19

The New EU States and their Adoption of the Euro

Introduction

The EU has grown in size with successive waves of accessions.

Denmark, Ireland and the United Kingdom joined the founding members (Belgium, France, West Germany, Italy, Luxembourg and the Netherlands) in 1973, followed by Greece in 1981, Spain and Portugal in 1986 and Austria, Finland and Sweden in 1995. The European Union welcomed ten new countries in 2004: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. Bulgaria and Romania expect to follow in 2007, while Croatia and Turkey began membership negotiations in 2005.

In 1992 the EU decided to implement Economic and Monetary Union (EMU), incorporating the introduction of a single European currency managed by a European Central Bank. The single currency - the euro - became a reality on 01 January 2002, when euro notes and coins replaced national currencies in twelve of the fifteen countries of the European Union (Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal...