The Euro and the Exchange Rate Policies of the Transition Economies of Southeastern Europe

Christos Papazoglou

Eastern European Economics, 2003, vol. 41, issue 3, 5-28

Abstract: This article examines the possible implications of the launching of the euro on the existing exchange rate arrangements of the countries of southeastern Europe. Given the adverse economic conditions most of them face, the impact of the euro is primarily related to macroeconomic stabilization and growth prospects and to a much lesser extent to the accession challenge. The analysis indicates that the introduction of the euro does not necessarily mean that a fixed regime vis-à-vis the new currency must be the desirable policy choice. As a matter of fact, given the importance of the euro in world trade, a policy of greater exchange rate stability against it would reveal in a much more profound way the economic and structural weaknesses of the particular countries. As a result, for most of them, the continuation of foreign aid is of vital importance for the sustainability of a policy of a euro-based exchange rate target.

Date: 2003
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