On the road to the euro zone. Currency rate stabilization: experiences of the selected EU countries

Sławomir Bukowski

No 50/2008, Quaderni del Dipartimento di Economia, Finanza e Statistica from Università di Perugia, Dipartimento Economia

Abstract: The aim of this article is to show the threats connected with the exchange rate stabilization within the framework of ERM II and the analysis of the randomly selected EU countries – candidates for the Euro Zone. A two year stabilization of the exchange rate within the ERM II required prior to the Euro Zone accession is connected with numerous risks typical of a fixed rate with a hard band of fluctuations. There are two ways of exchange rate stabilization – a standard one as in the case of the Slovenian Tolar or a currency board (the case of the Baltic states). Neither of them is free of drawbacks. Against this background a question can be formulated: is the exchange rate stabilization indispensable for the Euro Zone accession at all? More and more arguments are raised against it. The most relevant ones refer to the criteria of price stability and fiscal stability. Stabilization of the exchange rate within the ERM II for two years in the situation of free capital flows may not be successful and there is a probability of the currency crisis in the country stabilizing the exchange rate.

Keywords: monetary union; euro zone; euro; ERM II; system of exchange rate; fixed exchange rate; floating; currency board; impossible trinity; fiscal stabilization; stabilization of exchange rate; budget deficit; public debt; interest rate; current account; FDI; foreign portfolio investment; Samuelson- Balassa effect; inflation; speculation attack. (search for similar items in EconPapers)
JEL-codes: F F3 F36 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2008-03-31
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Citations: View citations in EconPapers (5)

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