The questions should be answered using Macro Economic arguments using graduate level thinking. Please pay attention to the questions asked.
The perils of convergence
From The Economist print edition
Countries joining the EU next year face a tricky path to the euro
EVEN as they try to persuade their citizens to vote for membership of the European Union, the governments of the ten, mostly ex-communist, countries invited to join the EU (European Union) in May 2004 are preparing for their next big challenge: adopting the euro. Many are eager to join, so as to reap the benefits of eliminating currency risk, lower interest rates than they now enjoy and (they fondly hope) faster economic growth.
In theory, the question is not if, but when, these countries will join the euro: unlike Britain and Denmark, which are in the EU but not the single currency, they have no Maastricht treaty “opt-out”. They are supposed to meet the same entry conditions as those set for the 12 current members of the euro area. As well as low inflation and long-term interest rates, budget deficits below 3% of GDP and government debt below 60% of GDP, that means they should spend at least two years in the EU's exchange-rate mechanism, ERM2, keeping their currencies within a 15% band either side of a central rate against the euro.
Note that The Euro is a common currency arrangement between countries with a common central bank, the European Central Bank. All countries that join the Euro have a vote in the conduct of monetary policy of the European Central Bank.
1) The above article says, “Many are eager to join, so as to reap the benefits of eliminating currency risk, lower interest rates than they now enjoy and (they fondly hope) faster economic growth.” Why will joining the Euro achieve this for ex-communist countries such as Poland and Hungary?
2) The article further says, “They are supposed to meet the same entry conditions as those set for the 12 current members of the euro area. As well as low inflation and long-term interest rates, budget deficits below 3% of GDP and government debt below 60% of GDP.” What is the economic rationale for imposing the stringent requirements of budget deficits below 3% of GDP and Government debt below 60% of GDP as entry conditions for joining the Euro?