Exchange Rate Regimes of CEE Countries on the way to the EMU: Nominal Convergence, Real Convergence and Optimum Currency Area Criteria

The paper addresses some issues which are still open in the process of inclusion of CEE countries in the EMU. First, what are the interests of both parties involved (CEE countries and the EU side) regarding the dynamics of the accession of CEE countries to the EMU, and related to this, what is its likely scenario (early or late inclusion in the EMU), taking into account the balance of powers between the two sides. Second, the paper discusses the criteria for measuring readiness of individual CEE countries for joining the EMU. The analysis is focused on the debate on nominal convergence (represented by the famous maastricht convergence criteria) versus real convergence (catching up in economic development). In short, the discussion concentrates on the question whether monetary integration is possible and desirable among countries at a different level of economic development. Finally, special attention is paid to optimum currency area criteria, not only as a theoretical background for monetary integration, but also as an additional insight into the measurement of relative suitability and readiness of individual candidate countries for joining the EMU. As an illustration, the paper attempts to measure some of the optimum currency area indicators for the case of Slovenia, and finds out that Slovenia is relatively quite suitable for joining monetary integration and relatively well prepared for joining the euro area. In particular, Slovenia is not expected to be exposed to serious asymmetric shocks, once Slovenia joins the EMU.