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In the otherwise rich debate on the eastward expansion of the Eurozone, fragmented approaches prevail, leaving several conceptual avenues of this process underexplored. The case of Poland — initially a fervent enthusiast of the euro adoption and a somewhat assertive endorser today — offers in this context an opportunity to add to the debate and deepen our understanding of the logic behind eastward expansion of the Eurozone. In what follows, Poland's prospective Eurozone entry is examined from the broader angle of the historically determined conceptual and policy-making context of systemic transition. To this end, a conceptual nexus between Eurozone expansion and transition is established and examined through the historical institutionalist perspective. It is argued that rather than being solely a function of Poland's EU membership, both the decision to adopt the euro and the attainment of real and nominal convergence are predominantly a function of the, as yet unfinished, transition process. Interestingly, as this paper suggests, the inconsistency inherent in the execution of the Maastricht convergence criteria not only creates disincentives that effectively delay Poland's Eurozone entry but also triggers reform-drift and backsliding, thus casting a shadow on the prospect of the completion of the Polish transition and its sustainability.
This paper studies the global, regional, and country-specific components of four key financial market indicators: sovereign CDS spreads, equity indices, exchange rates, and EMBI Global bond spreads. In all four markets, the results support the findings of the literature of a significant global component, but also point out the importance of regional correlations. Variance decompositions point to roughly a third of variance explained by both global and country-specific components in each of the four analysed financial markets, although there is considerable cross-country heterogeneity in this respect. The global factors of indicators are correlated across asset classes, but the market- and country-specific components of indicators are still significantly large to suggest diversification benefits of both multi-asset and multi-country portfolios. An application of the factor model suggests that the link between Central Eastern European and Euro zone periphery markets is stronger and more direct in the case of equity indices than in the case of sovereign CDS spreads.
The global economic and financial crisis has raised further concerns about the euro-entry criteria, in addition to other factors, such as the effective tightening of the criteria due to the enlargement of the EU from 12 to 27 members, the highly 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 became a highly volatile measure. Many US metropolitan areas would fail to qualify to be members of the US monetary union by applying the currently used inflation criterion to the US. It is time to reform the criteria and to strengthen their economic rationale within the legal framework of the EU treaty. A good solution would be to relate all numerical criteria to the average of the euro area and simultaneously to extend the compliance period from the currently considered one year to a longer period.
