EKIP– Expert Club for Economics and Politics A Different Opinion
- The transition from a currency board to a conventional monetary policy ( the euro, for example) will, all other things being equal, contribute to an increase in the inflation rate in Bulgaria.
- Not only an initial change in prices as a result of rounding can be expected, but also a permanently accelerated inflation due to the change in the monetary regime.
- In all countries that have adopted the euro, there is convergence in the price level towards the EU (EU) average, but this is far from being the case in terms of the purchasing power of income.
Yesterday, Eurostat published preliminary inflation data for the first month of 2022. The four countries with the highest price level increases were the latest eurozone members – Lithuania (12.2%), Estonia (11.7%), Latvia (7.7%) and Slovakia (8.5%). In these four countries, the average annual rate of price convergence to the EU average ranged from 0.40 (Latvia) to 1.19 (Estonia) percentage points.
The new report by the EEOC – The Euro: Convergence, Inflation and Indebtedness– by financier Dimitar Chobanov, explains this trend by looking at the most recent countries to join the single currency. Non-converging economies in the eurozone (those that are further from the EU average income levels) experience higher inflation within the eurozone.
Two more conclusions from the report:
- Another result of adopting the euro is the increase in countries' indebtedness, with the most common justification for this being crisis periods - this is happening in 7 out of 8 countries, including fiscally disciplined ones in principle such as Lithuania, Latvia and Estonia.
- Convergence in purchasing power parity (PPP) income relative to the EU average is occurring in half of the 8 economies examined. One of them has remained almost unchanged, while three are lagging behind the EU.
The full text of the study can be found HERE.
