ACE Phare Programme, The Macroeconomics of Accession: Fiscal Consequences of European Monetary Integration

EU (Kommission der Europäischen Gemeinschaften)

The enlargement of the European Union towards Central and Eastern Europe is one of the greatest challenges Europe is facing in these days. Currently, twelve CEE countries have started their formal accession negotiations and have already met the Copenhagen criteria. Becoming a member of the EU automatically implies the commitment to finally adopt the Euro as its currency. Accession countries will initially participate in the EMU with the status of a member state with a derogation. When an accession country becomes full member in EMU, it will have to give up its national seigniorage wealth on the one hand, to be socialised among all member countries. On the other hand it will gain a share of the common currency area seigniorage. One obvious question is whether accession countries will gain or lose from the redistribution of seigniorage wealth which is brought about by the EMU.

We seek to answer this question for Bulgaria, the Czech Republic, Hungary, Poland and Romania from an all-inclusive currency union point of view. A comprehensive discrete period accounting framework for measuring the sources and uses of seigniorage in the 1990s is presented. The framework is based upon the gross concept of seigniorage that defines seigniorage in the broadest possible sense as the sum of revenues resulting from the monopoly power to issue money. Legal, institutional and operational details which are relevant for the creation of base money in a country are taken into account.

In contrast to the common belief that in most transition economies revenues from money creation play a significant budgetary role, the study illustrates that from 1998 onwards the flow of budget revenues from central bank seigniorage was rather negligible and with a decreasing tendency. Furthermore, it shows that an accession to the European Monetary Union will create significant once-and-for-all gains of seigniorage wealth for the accession countries resulting from redistributing seigniorage wealth.