Summary and main conclusions

The paper discusses the impact of EMU on the 12 Mediterranean partner countries. It argues that the introduction of the euro is likely to have a positive, albeit limited, impact on the region. The Mediterranean partners will benefit from a more predictable and transparent external environment that will allow them to better exploit their comparative advantage in the long run. They will also benefit from stronger-than-otherwise output growth in Europe, as well as a potentially more competitive source of external financing. With the introduction of a stable nominal anchor in Europe, Mediterranean partners will have the opportunity to review their exchange rate regimes and policies. In a broader sense, the sound European policy framework under EMU is likely to spill-over on to the formulation of economic policy in the Mediterranean. It will provide the partner countries with incentives to conduct prudent fiscal and monetary policies and to implement far-reaching structural reforms to further integrate the region in the world economy.