Macroeconomic Performance of the Main Central European Candidates for Joining the European Union

The primary purpose of this short paper is to consider and give preliminary answers, with respect to the main EU candidate countries, to the following questions: 1. Has macroeconomic stability already been, or is soon to be, accomplished? 2. Do these candidate countries comply with the most basic EMU requirements, e.g. sound fiscal policy, independent central bank, etc.? 3. Are there any factors which might, during the run-up to EU membership, complicate their macroeconomic policy, e.g. bad debts, tax arrears, infrastructural and environmental investments, things which may lead to large fiscal deficits? 4. Could liberalisation of their (perhaps still fragile) financial services markets and/or systems cause macroeconomic problems? Should these markets/systems be further developed/deepened first? 5. Given the answers to questions 1 to 4, are these countries really ready for EU membership? 2. The divergence problem, how large? Table 1 provides a selection of basic data on the eight CE countries which are regarded in this paper as primary EU candidates. Enlargement will be for them, as indeed it will also be for the present EU countries, a major institutional innovation. Any such innovation, before it begins to bring about benefits, must initially entail some short-term adjustment costs to both sides. Entry requirements are formulated with the intention of minimising these initial costs. Such costs will be related to the divergence of the CEÅš8 from the EUÅš15, and to the magnitude of the enlargement. Both factors will determine the size of the ‚enlargement shock. The data in Table 1 provide a basis for an evaluation of the development gap between the two groups of countries one of several dimensions of divergence and of the size of the enlargement shock.