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A Strategy for Launching the Euro

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  • Obstfeld, Maurice

Abstract

This paper analyses the constraints European Union law places on the 1 January 1999 choices of irrevocably fixed conversion rates between the euro and the currencies of EMU members states. Current EU legislation, notably the Maastricht Treaty, requires that the bilateral currency conversion factors implied by the 1 January 1999 choices equal closing market exchange rates on 31 December 1998. Given that legal constraint, there still exist several strategies for choosing the relative prices of EMU member currencies against the euro. Unfortunately, most of these have potentially damaging side effects. One approach, based on official Stage 2 offers of contingent euro forward contracts with value dates at the start of Stage 3, allows a highly credible preannouncement of the bilateral currency conversion factors to be set at the start of EMU. That approach assumes, however, that no prospective EMU members can withdraw between their selection in May 1998 and the start of Stage 3.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1732.

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Date of creation: Oct 1997
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Handle: RePEc:cpr:ceprdp:1732

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Keywords: EMU; Euro; european system of central banks; Maasticht treaty;

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References

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  1. De Grauwe, Paul, 1997. "The Indeterminacy of the Euro Conversion Rates. Why it Matters and How it can be Solved," CEPR Discussion Papers 1677, C.E.P.R. Discussion Papers.
  2. Kenneth A. Froot & Kenneth Rogoff, 1991. "The EMS, the EMU, and the Transition to a Common Currency," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 269-328 National Bureau of Economic Research, Inc.
  3. Kareken, John & Wallace, Neil, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 207-22, May.
  4. De Grauwe, Paul, 1996. "How to Fix Conversion Rates at the Start of EMU," CEPR Discussion Papers 1530, C.E.P.R. Discussion Papers.
  5. De Grauwe, Paul & Spaventa, Luigi, 1997. "Setting Conversion Rates for the Third Stage of EMU," CEPR Discussion Papers 1638, C.E.P.R. Discussion Papers.
  6. Mussa, Michael, 1976. " The Exchange Rate, the Balance of Payments and Monetary and Fiscal Policy under a Regime of Controlled Floating," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 229-48.
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Citations

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Cited by:
  1. Charles Wyplosz, 1997. "EMU: Why and How It Might Happen," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 3-21, Fall.
  2. Mark Trede & Bernd Wilfling, 2007. "Estimating exchange rate dynamics with diffusion processes: an application to Greek EMU data," Empirical Economics, Springer, vol. 33(1), pages 23-39, July.
  3. Siebert, Horst, 1998. "Die Europäische Währungsunion: was zu tun und was zu lassen ist," Kiel Working Papers 854, Kiel Institute for the World Economy.
  4. Costas N. Kanellopoulos, 2012. "The Size and structure of uninsured employment," Economic Bulletin, Bank of Greece, Economic Research Department, issue 37, pages 23-41, December.
  5. Ioana Laura Valeanu, 2012. "Challenges Of The Economic And Monetary Union In The Context Of The Economic Crisis," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 4, pages 866-877, December.
  6. Jean-Sébastien Pentecôte & Marc-Alexandre Sénégas, 2003. "Comment fixer les cours de change?. Annonces et correspondances maastrichtiennes," Recherches économiques de Louvain, De Boeck Université, vol. 69(1), pages 39-71.
  7. Petros M. Migiakis, 2012. "Reviewing the proposals for common bond issuances by the euro-area sovereign under a long-term perspective," Economic Bulletin, Bank of Greece, Economic Research Department, issue 37, pages 43-54, December.
  8. Wilfling, Bernd, 2001. "Interest rate volatility prior to monetary union under alternative pre-switch regimes," HWWA Discussion Papers 143, Hamburg Institute of International Economics (HWWA).
  9. Maurice Obstfeld, 1999. "EMU: Ready, or Not?," NBER Working Papers 6682, National Bureau of Economic Research, Inc.
  10. Zacharias Bragoudakis & Dimitrios Sideris, 2012. "Do retail gasoline prices adjust symmetrically to crude oil price changes? the case of the Greek oil market," Economic Bulletin, Bank of Greece, Economic Research Department, issue 37, pages 7-21, December.
  11. Kaikati, Jack G., 1999. "The Euro versus the U.S. dollar: an overview," Journal of World Business, Elsevier, vol. 34(2), pages 171-192, July.
  12. Wilfling, Bernd, 2009. "Volatility regime-switching in European exchange rates prior to monetary unification," Journal of International Money and Finance, Elsevier, vol. 28(2), pages 240-270, March.

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