Following their accession to the European Union (EU) on May 1st, 2004, ten New Member States (NMS), and two more that joined in 2007, are expected to fulfill the Maastricht convergence criteria and enter the last stage of Economic and Monetary Union (EMU) thereby adopting the euro.
However, the Treaty on European Union (TEU) does not specify a time frame. Slovenia joined the euro area in 2007, Cyprus and Malta in 2008, and Slovakia in 2009. Other NMS have not yet adopted the euro. Some have made serious attempts at being ready to join; others are still far removed. So, why have some NMS not been able to join the euro area even if they made serious attempts at the outset?
An economic cost-benefit analysis suggests that in the long run euro adoption is positive for NMS. Economists typically look at macroeconomic conditions to determine whether or not a country is ready (Buiter, 2000; De Grauwe and Schnable 2005; Lipschutz, Lane and Mourmouras, 2005; Schadler 2005). However, they are unable to explain the political processes that change those macroeconomic conditions. By contrast, political scientists studying the euro adoption process in NMS (e.g. Dyson, 2006, 2008; Greskovits, 2006, 2008 and Johnson, 2006) have mostly offered constructivist analyses of euro adoption strategies in NMS. They have typically focused on collective identity, the role of policy learning, ideas and knowledge transfer among central bankers and other political elites, as well as adjustment to global pressures and Europeanization.
We find neither economic nor political science analyses fully satisfactory in their explanation of euro adoption strategy of NMS. We argue that for a complete understanding of the euro adoption strategy in NMS one needs to look at the domestic political situation. This paper adopts a domestic politics approach to analyze the euro adoption process and applies it to three case studies: the Czech Republic, Hungary and Poland. None of these countries have adopted the euro yet and over the past decade each of them have had differing political stances towards it.
Based on an examination of government documents, reports in the media, academic literature and face-to-face interviews with nineteen key informants in these three countries we seek to offer new insights into the role of domestic politics in explaining the process of euro adoption in NMS. A cost benefit-analysis indicating positive economic effects of euro adoption and the existence of shared economic values and beliefs among central bankers are insufficient to bring about speedy euro adoption. Government policies, elections, electoral cycles as well as constitutional rules, to name just a few, turn out to be crucial in explaining the lagging euro adoption process in these countries.
The paper is structured as follows. The next section reviews the literature on euro adoption (both economics and political science literature). Section three provides details of the domestic politics approach and reports on the methodology. Sections four through seven offer the empirical analysis of the domestic approach with respect to the three cases. The final section highlights the most important findings of the comparative study and offers some general conclusions.
