prudent banking sector supervision, labor market reforms and sound fiscal policies to name a few. adoption of proper policies reduces future potential costs related to euro - zone membership and, at the same time, enhances future benefits. in my view, given the evidence that reforms have been halted in many countries after entering the eurozone, these measures should be taken before the euro area accession. thank you for your attention. references : 1. borowski j. 2003. “ potential benefits of poland ’ s emu accession ”, focus on transition no. 1. 2. brzoza - brzezina, m. 2005. “ lending booms in the new eu member states : will euro adoption matter? ”, ecb working paper no 543, european central bank, frankfurt. 3. brzoza - brzezina, m. 2006. “ the information content of the neutral rate of interest : the case of poland ”, economics of transition 14 ( 2 ), s. 391 - 412. 4. buiter, w. h., nielsen, e. ( 2007 ), “ mundell on his head : asymmetric shocks are good for you, thanks to economic and monetary union in europe ”, paper presented at the brussels economic forum 2007, global adjustments and emu, 31 may 2007 - 1 june 2007 5. csajbok, a., csermely, a. ( ed. ) 2002. “ adopting the euro in hungary : expected benefits, costs and timing ”, mnb occasional paper 24, national bank of hungary 6. degrauwe, p. 2003. “ the enlarged eurozone : can it survive? ”, jelle zijlstra lecture, nias. 7. demirguc - kunt, a., detragiache, e. 1998. “ the determinants of banking crises in developing and developed countries ”, imf staff papers, vol. 45, no. 1, washington, d. c. 8. ecb ( 2006 ), “ indicators of financial integration in the euro area ”, ecb, september 2006 9. eickmeier, s., breitung, j. 2005. “ how synchronized are central and east european economies with the euro area? evidence from a structural factor model ”, discussion paper 20 / 2005, deutsche bundesbank 10. estrada, a., lopez - salido, d. 2001

and flexible labor market which can absorb shocks, should they arise. now let me move to the possibility of rising micro - and macroeconomic imbalances. they can take the form of lending booms, current account deficits or increasing inflation pressure. such a set of symptoms in a monetary union member country reveals in most cases one common cause – too low a level of real interest rates. economists have for a long time argued that each economy has an appropriate, long - run level of the real interest rate called the natural rate of interest ( wicksell 1898 ). keeping interest rates at this ( unfortunately unobserved ) level should guarantee that the economy will remain in equilibrium – output will not exceed production capacity and inflation will remain stable ( woodford 2003 ). this is what implicitly or explicitly most inflation targeting central banks are trying to achieve. one of the problems with joining a common currency area might be that real interest rates in this area will be lower than the natural rate of the new member. recent research shows that this might be the case for poland, where the natural rate has remained in the past above the euro area level ( brzozabrzezina 2006 ). for poland, entering the eurozone means lower nominal interest rates ( the spread on long - term rates still exceeds 100 basis points ) and higher inflation ( due to appreciation of the real exchange rate related to the catching up process, with no longer available nominal exchange rate channel ). together this means a drop in real interest rates, which could induce people and enterprises to substantially increase borrowing, and spend the loans on consumption and investment goods. what could be the consequences of this? first, if borrowing accelerates massively, banks may start extending loans without properly checking their customers ’ creditworthiness – this could result in bad debt problems. it is a well known phenomenon ( e. g. demirguc - kunt, detragiache 1998, gourinchas et al. 2001 ) that lending booms are often followed by banking sector crises. fortunately, recent research on the potential for lending booms in poland after euro area accession forecasts a rather moderate increase in lending ( schadler et al. 2005, brzoza - brzezina 2005 ), and shows that the expected credit growth is rather an equilibrium phenomenon – a structural adjustment that should not have negative consequences ( kiss at al. 2006 ). nevertheless, even if a serious lending boom during euro area accession seems unlikely, policy