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14th SUERF Annual Lecture on "Problems and Prospects for Enlargement of the Eurozone"

Author(s): by Paul de Grauwe

Date published: Jun 2007

The 2007 SUERF Annual Lecture was delivered by Professor Paul de Grauwe, Katholieke Universiteit, in the Kassensaal of the Oesterreichische Nationalbank in Vienna on "Problems and Prospects for Enlargement of the Eurozone" by Professor Paul de Grauwe, Katholieke Universiteit Leuven.

In the 2007 SUERF Annual Lecture, Professor Paul De Grauwe, Katholieke Universiteit Leuven, spoke about Problems and Prospects for Enlargement of the Eurozone. Building upon arguments from the theory of Optimal Currency Areas, De Grauwe argued that in terms of trade integration, many of the New Member States fit better into the euro area than some of the existing Euro Area countries; by contrast, they are subject to more asymmetric shocks. Since the EU-27 does currently not form an OCA, widening of the euro area to 27 Member States would amplify already existing economic divergence within the euro area and thus create tensions within the euro area which cannot be solved by the ECB's single monetary policy. Already among the present group of euro area countries, there are persistent economic imbalances, which, according to De Grauwe, call for monetary union eventually to be supplemented with political union. At the same time, the larger the EU, the more difficult political union will become to achieve. In the vivid ensuing discussion, this rather bleak view was challenged by some, pointing out, for instance, that Germany's current recovery shows that adjustment of the real exchange rate through wages and prices, while being slow, can work effectively over the medium run.

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