The prospect of joining the European Union has been a powerful driving force behind the reforms in many transition economies. While there are many benefits to full EU membership, a rushed accession could prove damaging to both new and current members. In this problem set you will try to evaluate your country's position with respect to the EU and its readiness for accession.
 

1. Describe in one paragraph your country's ties with the EU. You should support your description with data. (A good source may be the IMF's Direction of Trade, HF91 .I65).
2. The Maastricht treaty set convergence criteria for admission to the European Monetary Union. These criteria are:
• annual consumer price inflation must not exceed that of the three best performing countries by more than 1.5 percentage points
• interest rates on long-term government debt must not be more than 2 percentage points higher than those in the three member states with the lowest inflation
• the government deficit should not be excessive; in this context, a country will be considered to have an excessive deficit if either the general government deficit exceeds 3% of GDP, or if its public debt exceeds 60% of GDP
• the country's currency must have been traded without severe tensions within the normal fluctuation bands for at least two years.
In 2001 the average inflation and interest rates in the three EU countries with the lowest inflation were 2.5% and 6.6% respectively. Does your country satisfy the Maastricht convergence criteria? Support your answer with data where possible.
3. Do you think it would be a good idea for your country to adopt the common European currency? What would be the advantages and what would be the possible risks? What variables would you look at to support your answer?