Consider three hypothetical countries Kipr Ispania and Atlan

Consider three hypothetical countries, Kipr, Ispania, and Atlantida, that seek membership in the European Monetary Union (EMU). Suppose that the average inflation rate of the three European countries with the lowest inflation rates is 2.0%, and the average Interest rate of those countries is 2.2%. Evaluate the characteristics of Kpr, Ispania, and Atlantida presented In the following table using the Maastricht convergence criteria. Then, use the dropdown menus in the bottom row to identify whether each country is eligible to become an EMU member.

Solution

The nominal convergence criteria which must be met by the countries joining the Economic and Monetary Union were laid down in the European Union Treaty which is also known as the Maastricht Treaty. They include:

The first three convergence criteria are designed to ensure monetary stability by supporting a fixed exchange rate regime among member countries. The stability of the euro is reinforced by the last two criteria, which protect the European Union from threats of inflation which may arise from government budget deficits.

The Country KIPR cannot became a member of European Monitary Union (EMU) because this country is not fulfilling either of the critieria needed except the last criterion.

The Country ISPANIA also cannot became a member of EMU because this country is not meeting the third criterion which requires not to devalue their exchange rate in the period of atleast two years.

The Country ATLANTIA can became of member of EMU because this country is fulfilling all the requirements needed.