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The perils of convergence

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(i) The above article says, "Many are eager to join, so as to reap the benefits of eliminating currency risk, lower interest rates than they now enjoy and (they fondly hope) faster economic growth." Why will joining the Euro achieve this for ex-communist countries such as Poland and Hungary?
(ii) The article further says, "They are supposed to meet the same entry conditions as those set for the 12 current members of the euro area. As well as low inflation and long-term interest rates, budget deficits below 3% of GDP and government debt below 60% of GDP." What is the economic rationale for imposing the stringent requirements of budget deficits below 3% of GDP and Government debt below 60% of GDP as entry conditions for joining the Euro?

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Solution Summary

This solution is comprised of a simple explanation of the benefits of some European countries joining the economic European Union.

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Hi There,

Here are my thoughts regarding your queries:

The adoption of the euro will have beneficial results for the economies of all Member States, bringing in particular, stability, low interest rates and a zero exchange risk. For business, the euro will cut the cost of doing business and simplify cross-border trade. For the consumer the euro will promote greater competition and a wider choice of goods and services, stable prices and lower interest rates. For the traveller, the euro will make travelling cheaper and easier by eliminating currency exchange charges.

The adoption of the euro will have beneficial results for the economies of all Member States, bringing in ...

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