Joining the EMU: An Analysis of the Benefits and Challenges of Macedonia’s Convergence Towards the European Economic and Monetary Union

This paper offers an evaluation of Macedonia’s readiness to join the European common currency rapidly after accession to the European Union. The key question addressed is how soon after EU accession will Macedonia meet the critical lower threshold in the mix of OCA properties for endogeneity effects to appear ? The paper examines firstly whether pegging its currency to the euro and eventually joining the EMU is an adequate policy objective, bringing benefits for Macedonia. After that, the paper takes a look at Macedonia’s performance in the five formal convergence criteria. Finally, the paper examines whether Macedonia is able to deal with temporary and permanent asymmetric shocks. We look at business cycle correlation, labour market rigidities and fiscal and budgetary policies. Given the breadth of the topic and the short space, the scope of this paper is limited to giving an overview and addressing a number of key areas. The paper’s conclusion is that joining the EMU can trigger endogeneity effects and a faster economic convergence process for the Macedonian economy, hereby bringing potentially substantial benefits. However if the formal adoption process for joining the European common currency is launched too rapidly after accession whilst the Macedonian economy is still below the critical threshold for triggering endogeneity effects, stabilisation costs could prove to be considerable.