Macroeconomic Convergence in the New EU Member States

The main challenges ahead for macroeconomic policies in the new EU member states are to manage rapid growth accompanied by large and potentially volatile capital inflows and to achieve the nominal convergence required to enter the Third Stage of the European Economic and Monetary Union. These two challenges are related since rapid real convergence makes it difficult to achieve nominal convergence. It is in the interest of the new EU member states to adopt the euro as soon as possible. This follows from the fact that they are small open economies and expected benefits from adopting the euro are likely to overweigh the cost of foregoing their independence over monetary and exchange rate policies.