Jesús Crespo-Cuaresma

On the Road: The Path of Bulgaria, Croatia and Romania to the EU and the Euro

ON 1 MAY 2004 EIGHT CENTRAL AND EASTERN EUROPEAN COUNTRIES and two Mediterranean states became new member states of the European Union. At the same time, more countries declared their interest in joining the EU sooner or later. In principle, there is a wider range of countries that may potentially have a prospect of EU membership in the remote future, but there are three CEE countries that are one step ahead and have submitted their membership applications: Bulgaria, Croatia and Romania. Negotiations about EU accession with Bulgaria and Romania started in 2000 and were officially closed in December 2004. Both countries are preparing to join the EU in January 2007 and have the status of acceding countries. Croatia on the other hand has submitted its application for EU membership but is currently waiting for accession negotiations with the EU to start. Some of these countries may join the new EU member states in the next integration steps, and introduce the euro jointly with some current entrants. Apart from the pursuit of stability-oriented monetary and fiscal policies, the key requirement for reaching this level is participation in the Exchange Rate Mechanism II (ERM II) for at least two years, which involves, in particular, agreement on the central parity. This challenge has renewed interest in the literature on the determination of equilibrium

The Fiscal Smile: The Effectiveness and Limits of Fiscal Stabilizers

We study the smoothing impact of fiscal stabilizers (proxied by government expenditures or revenues) on business cycle volatility for a panel of EU countries in the period 1970-99, The results show that the business cycle volatility smoothing effect of fiscal stabilizers may revert at high levels. We present evidence that for government expenditure ratios exceeding an estimated value of about 38 percent, a further expansion in the size of the government could actually lead to an increase in cyclical volatility. This may call for a reconsideration of the use of fiscal stabilizers for business cycle smoothing.