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The 10 new member states are now facing the challenge of framing and implementing policies for adopting the euro. They are all bound by the EU Treaty to replace their national currencies with the euro at some future time as they were admitted to the Union with a derogation to this effect. In order to prepare adequately for entry to the euro area, the candidates need to undergo fiscal and monetary convergence. In principle, they should refrain from lax fiscal policies that could skew the eurozone policy mix by forcing the European Central Bank (ECB) to tighten monetary policy. They should consistently reduce any public debt accumulation that could result in a banking crisis and subsequently put pressure on the ECB to monetize it. On purely technical grounds, to enter the European common currency system the euro candidates must satisfy the Maastricht fiscal and monetary convergence criteria. The original criteria are spelled out in the Treaty protocols dating back to 1991. Their viability and applicability to the new member states are currently subject to intense scrutiny, as they refl ect the European Commission’s apparent precept that the euro candidates should be treated as an isomorphic block, disregarding their structural and institutional differences (Kenen and Meade 2003).



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