Challenges for Monetary Policy in the Enlarged European Monetary Union

Abstract

The eastward enlargement of the Euro area entails significant implications for the accession candidates in Central and Eastern Europe (CEE), the existing Euro system and the monetary policy of the European Central Bank (ECB). The present analysis assesses the challenges and critical aspects in monetary policy modeling with special emphasis to enlargement. The focus is on the difficulty of implementing a unique currency policy in view or growing heterogeneity within the enlarged monetary union, and secondly – the issue of the voting mechanism within the ECB. When analyzing those two issues, it is conclusive that the difficulties for the ECB and the current Euro zone members will increase. For the enlarged Euro zone, which is becoming more divergent, it will be very hard to find adequate recipes to meet the needs and requirements of all. The big question is: whether centralisation of monetary policy is a sustainable and superior solution?

Key words: European Monetary Union; EU enlargement, Monetary policy, ECB reform.
JEL: D78, E50, E52, E58, F33.