Domestic politics comes first: Euro adoption strategies in Central Europe : the cases of the Czech Republic, Hungary and Poland.

Date

2012-01-20

Authors

Dandashly, Assem

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Abstract

In the 2003 Treaty of Accession, the signatories agreed that all New Member States (NMS) that joined the European Union (EU) in 2004, would adopt the euro, even if no timetable was provided. Why have some NMS not been able to join the euro area even if they made serious attempts at the outset? What are the circumstances and policies in these countries that have led them not yet to adopt the euro? Has it been lack of political will on the part of the government, a strong voice in the opposition, a euroskeptic president, insufficient administrative capacity, or lack of policy learning? Though there is no consensus among economists as to whether or not adopting the euro in the short run is a good idea, an economic cost-benefit analysis would suggest that in the long run euro adoption is positive for NMS. Yet, macroeconomic analyses cannot explain the change in government policies that may lead to euro adoption. Political scientists have typically focused on collective identity, policy learning, ideas and knowledge transfer among central bankers and other political elites, as well as adjustment to global pressures and Europeanization. This political science literature is unable to provide a satisfactory explanation as to why the Czech Republic, Hungary and Poland have not adopted the euro yet. I argue that the role of domestic politics is key to explaining the process of euro adoption in Czech Republic, Hungary and Poland: government policies, elections, electoral cycles as well as constitutional rules, veto points, central banks, public opinion and the media turn out to be crucial in explaining the lagging euro adoption process in these countries.

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Keywords

Central and Eastern Europe, comparative political institutions, domestic politics, Economic and Monetary Union, Europeanization, European Union, institutions, international political economy, macroeconomic policy, optimal currency area

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