EU Convergence and the Role of External and Internal Stability in Transition Countries

The Maastricht criteria measure the nominal convergence process of transformation countries to the European Union (resp. the EMU). The real convergence process, as opposed to the nominal, is much less scrutinized. Due to the high income elasticity of imports in Central and Eastern European countries, the question arises as to whether these countries will be able to stabilize their external balances as their GDP growth rates accelerate toward EU levels. The authors made several estimates of the export and import functions for six CEE countries. Using the monetary approach to delineate internal balance and Polak´s model to measure external balance, the results show that the Czech Republic and Poland are the least advanced in nominal convergence due to the widening of their respective external imbalance.