Eastern Enlargement of the Eurozone

The Eastern Enlargement of the EU will not be complete untilthe new member states join the EMU.Economic andpolitical economy arguments point to fast EMU accession of new member states. Failure to do sowill create a two speed Europe, a fundamental change in the economic and political architecture of the EU, adding to the strains already evident between core and peripheral countries.Current high level of trade and business cycle integration of new member states with the Eurozone, decreases the probability of asymmetric shocks. Lower transaction costs,elimination of exchange rate risk andthe danger of currency crises, further trade and investment creation, lower interest rates and large fiscal gains, should outweigh the loss of the exchange rate asadjustment tool. The Eastern Enlargement of the Eurozoneprovidescomprehensive economic analysis oftheoretical, empirical and political issues that will determine whether EMU enlargement is a success, whichhas implications for all common currency systems.