SOLUTION
The OCA criteria are based on the degree of market integration and symmetry of shocks across countries in the region. The Maastricht Treaty convergence criteria include nominal convergence criteria (fixed exchange rates, low inflation, low interest rates) and fiscal criteria (low debt and deficit). The fixed exchange rate band means that country is sacrificing its autonomous monetary policy to defend the peg against the euro. This is the first step in the complete elimination of national monetary policy. With the exchange rate peg, the country could always decide not to join and abandon the peg. In contrast, once part of the union, it would be very costly to reintroduce a national currency after people in the country have grown accustomed to using the euro. The low inflation and low interest rate criteria are designed to force countries to reduce their inflation rates before joining the union. This is because the current members of the Euro zone want to prevent new members from transmitting high inflation rates into the currency union. This implicitly requires commitment to the exchange rate peg, carrying the same stability costs discussed previously. The provisions for fiscal discipline are to prevent a situation in which current and new members pressure the ECB to allow higher inflation rates. Countries with higher deficits and debts might do this to generate seignior age revenue or to expand domestic credit to bail out failing banks (or governments). Of the convergence criteria, the fiscal restrictions are the most problematic because the numerical values are seemingly arbitrary and because they do not account for business cycles prevailing in a given country. For example, a country in recession will experience a decrease in tax revenue (as people earn less income), driving up the deficit through no deliberate action by fiscal authorities. Furthermore, trying to reduce the deficit or debt during a recession can be self-defeating because it would push the economy deeper into recession.