It Is not about Croatia and Bulgaria: It Is about the Fundamentals of Membership of the Euro Area

Abstract

This article was invited from the author in response to the June 2022 Bruegel.com blog post by Zsolt Darvas – and see the separate article in this issue – about the decision to let Croatia into the euro area while keeping Bulgaria out; and intended to elicit a view from Bulgaria. The author believes that Darvas is essentially right in his approach; and that, furthermore, the applications of Croatia and Bulgaria for entry to the euro area are a perfect example of why the whole framework needs a thorough re-consideration. The founding fathers of the euro area constructed it on the basis of fundamental principles of macroeconomic stability and the equal treatment of applicants. Consequently, most of the criteria for adopting the euro, the so-called Maastricht criteria, have numerical expressions: clear and transparent criteria do not open any room for interpretations and compromises with macroeconomic stability. In the last decade, however, the author argues that the flexible interpretation of these criteria has led to changes making the accession process more discretionary and euro area membership less attractive.

Keywords: euro area, ERM II, convergence criteria, TFEU, inflation, public debt, public policy, Stability and Growth Pact

JEL Classification: E5, E42, E44, E6, E58