European monetary union, optimum currency area and possible effects of slovakia's joining the euro area

Slovak Republic entered the ERM II in the end of 2005 whereby it came nearer to its strategic objective - joining the euro area. In this paper we try to answer two questions. Section 1 examines the features and risks of the EMU. Is EMU an optimum currency area and what is the OCA scorecard of euro area? We conclude that euro area - in spite of its indisputable benefits - is rather a premature monetary union with asymmetric monetary policy effects and other policy asymmetries. Section 2 analyzes possible effects of the EMU on the Slovak economy. We examine the experience of other countries and compare their real convergence to average level of euro area before and after joining the EMU. The readiness of Slovak economy for euro adoption, possible obstacles on this uneasy way and the connection between income level, price level and real convergence are analysed at the end of the paper.