The Euro area and the acceding countries

Abstract

The European Union is about to experience its largest increase in population since its creation in the 1950s with the accession of 10 new countries. This will increase the population by 20% and GDP by 9%. The institutional implications of this enlargement have already delayed agreement on a new constitution for EU. But there are also important implications for labour and capital markets. It provides a major challenge for inflexible labour markets since free capital movements will accelerate the movements of production to areas of the EU where labour costs are lower. The question is whether the conditions are in place for the Acceding Countries to move smoothly towards economic and monetary union. The integration of ten new members requires that the internal fiscal and monetary framework is in place to allow convergence under the Maastricht Treaty. Economic and institutional structures need also to be flexible in order to respond best to the opportunities opened up by accession. But it also requires that the existing European Union is flexible and able to respond to the challenges coming from more competition in labour, capital and product markets. This is why the process of labour and product market liberalisation takes on an even greater urgency.