Enlargement and Eurozone: Convergence or Divergence

Abstract

This paper investigates empirically the extent to which the ten new countries of the recent EU enlargement are ready to join the European Monetary Union (EMU). We assess the prospects of successful accession into the EMU using cointegration and common trends analysis on the nominal convergence criteria specified by the Maastricht Treaty as well as on real exchange rates and real per capita GDPs. The empirical results indicate that the enlargement countries are partially ready to join the Eurozone, and need further adjustments in their government policies to be fully prepared for joining the EMU.Economic Integration, EU Enlargement, Cointegration, Common Trends.