Re-Exploring the Enlargement of the Eurozone: Evidence from the New Member-States

The debt crisis of the Euro Area in 2010 raised plenty of doubts concerning the sustainability of the monetary union. Eurozone includes economies which have different structural characteristics. This event does not allow the establishment of an optimal currency area. The present research attempts to explore if the join of Cyprus, Malta, Latvia, Slovenia and Slovakia in the Eurozone was in favor of their economies. We used the nominal exchange rates as a financial instrument by combing the Error Correction Model with the Threshold GARCH, ECM-TGARCH. The empirical findings highly support that the EU membership influenced positively the relationship between the euro and the Cypriot Pound, the Latvian Lats and the Slovenian Tolar. On the contrary, we discovered that the join of Malta in the EU had a slightly negative and a long-term impact in the relationship between the euro and the Maltese currency. Finally, the entrance of Slovakia in the EU influenced positively the Slovakian currency. However, the relationship between the euro and the Slovakian Koruna remained negative.