Macroeconomic policy and institutions during the transition to European Union membership

In this chapter a framework is developed for macroeconomic policy analysis during the transition to membership of the EU and the euro zone. The framework is applied to four accession countries in Central Europe (CE): the Czech Republic, Hungary, Poland and Slovakia. A multi-annual fiscal adjustment strategy (MAFAS) and a pre-pegging exchange rate regime (PPERR) appropriate for maintaining internal and external balance are described and evidence on budgetary procedures is presented. A comparison suggests that the four CE countries are better prepared for fiscal stabilization than Greece, Spain and Portugal were in the 1970s. Nevertheless there is still considerable room for institutional improvement. A stronger commitment to fiscal targets at the preparatory stage would improve fiscal performance in all four countries, and their transition would be more credible if they adopted some group procedures for convergence.