Mojmir Helisek, University of Finance and Administration, Prague, Czech Republic, E-mail: firstname.lastname@example.org
PERSPECTIVES OF THE ACCESSION OF THE CZECH REPUBLIC TO THE EURO AREA IN TERMS
OF THE PRICE LEVEL CONVERGENCE
ABSTRACT. The replacement of the national currency with the euro is subject not only to the nominal convergence, but also to the real convergence of the country acceding to the monetary union. By default, the price levels convergence criterion is expressed as a deviation of the acceding country’s price level from the average price level of the euro area. However, this method is not well suited to measure price convergence. The weighted deviation of the Czech price level from the price level of the key trading partners of the Czech Republic is more appropriate. According to such new indicator, the Czech price level is 6.6 pp closer to the price level of the euro area compared to the traditional indicator.
Received: May, 2015 1st Revision: June, 2015 Accepted: July, 2015
DOI: 10.14254/2071- 789X.2015/8-2/3
JEL Classification : E31, F36,
F45 Keywords : Euro area, real convergence, price convergence, comparative price levels.
The accession of the Czech Republic to the European Union was also automatically associated with the obligation to replace the national currency (i.e. Czech koruna) with the single currency of the EU (i.e. euro). The euro introduction is subject to the fulfillment of convergence criteria set down by the Maastricht Treaty. In addition to these binding nominal convergence criteria, an economy acceding to the euro area should also monitor the fulfillment of the real convergence criteria. These criteria are not set down by European treaties; however, they result from economic rationality – from the calculation of costs and benefits of replacing the national currency with the single currency of the EU.
Mainly the following three real convergence criteria are most frequently assessed:
• Economic level alignment (GDP per capita) that shows converging competitiveness of integrating economies. The importance of this criterion consists in the fact that it is no longer possible to promote competitiveness through currency depreciation as national currencies cease to exist. Therefore, countries with similar economic level should integrate;
• Business cycle alignment (quarterly changes of the real GDP compared on a year- to-year basis) that expresses the current state of expansion/recession stages within individual monetary union countries. This development is beneficial due to the
Helisek, M. (2015), Perspectives of the Accession of the Czech Republic to the Euro Area in Terms of the Price Level Convergence, Economics and Sociology, Vol. 8, No 2, pp. 28-35. DOI: 10.14254/2071-789X.2015/8-2/3