Slovene FlagI remember wondering back in those days at the start of this decade whether – after all – some of the then accession countries would join the Euro before Britain did. The European Commission’s announcement yesterday that Slovenia has the green light to join the Eurozone in 2007 proves those thoughts right. Further, the fact that Lithuania’s application was rejected on the grounds of an inflation rate that was too high shows that the European Commission is ready to take a tougher line towards the new members of the Eurozone than it did to the founding members. Commission, double standards? Surely not! Anyway, the BBC has a decent bit of analysis on this issue here.

Yet there is one issue that has gone largely unnoticed in all of this: how the Euro interacts with freedom of movement. Citizens of the 10 states that joined the EU in 2004 have only had full rights to go and work in the UK, Ireland and Sweden until now. 4 more countries – Greece, Spain, Finland and Portugal – have now also agreed to lift restrictions. Yet 8 of the 15 old Member States still have limits on workers’ mobility. This is in stark opposition to Mundell’s theory of Optimum Currency Areas (Wikipedia article here).

One of the three main components of the theory is that a currency area needs labour mobility across the region – physical ability to travel and a lack of cultural barriers to free movement. It has always been argued that the EU has at least allowed the physical ability for workers to move within the Eurozone, and has had the vague hope that individuals could overcome the cultural barriers. The decision to let Slovenia into the Eurozone does not attempt even to pay lip service to the idea of worker mobility as an essential component of the Eurozone.

2 Comments

  1. That’s a very interesting point. I’ve never thought about arguning this way in favour of the removal of labour movement restrictions.

    But you also have the criteria of tax redistribution as the third one. Yes, you could argue that we have Regional funds in the EU, but we’re far from the fiscal transfers. Or?

  2. It’s clear we don’t have fiscal transfers, but the EU has never said its regional funds worked in harmony with the Euro. That was one of the criticisms of the Euro from the outset. Regional funds are too small, and too slow, to work as proper fiscal transfers.

    But we should be eliminating the barriers in the Eurozone, not making new ones as we are for Slovenia!

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