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Accession of the Czech Republic into euro area and Maastricht convergence criteria from the perspective of theory of „impossible trinity“

  • Mojmír Helísek

    ()

    (University of Finance and Administration)

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    Accession into euro area is conditioned (among others) by stable low inflation rate and stable currency exchange rate (participation in ERM IIII). Treaty on EU defines obligation to maintain free international capital flow. It concerns three objectives and theory of “impossible trinity” considers simultaneous fulfillment of all these three objectives infeasible. Experience resulting from the first wave of euro area members shows temporary limitation of capital flow, or loss of autonomous currency policy. Stable exchange rate is maintained, but extension of fluctuation zone denies its character of “stable exchange rate”. In conditions of ERM IIII (Greece, Slovenia, Lithuania) stable exchange rate, low inflation rate (with connection of currency policy with European Central Bank) and free capital flow were reached. Present development of the Czech economy shows the same development. Maintaining low inflation by restrictive currency policy together with simultaneous appreciation of exchange rate (or revaluation of central parity) is not in contradiction with Maastricht convergence criteria.

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    File URL: http://www.vsfs.cz/periodika/acta-2008-02.pdf
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    Article provided by University of Finance and Administration in its journal ACTA VSFS.

    Volume (Year): 2 (2008)
    Issue (Month): 2 ()
    Pages: 138-157

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    Handle: RePEc:prf:journl:v:2:y:2008:i:2:p:138-157
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    1. European Commission, 2011. "Taxation trends in the European Union: 2011 edition," Taxation trends 2011, Directorate General Taxation and Customs Union, European Commission.
    2. European Commission, 2013. "Taxation trends in the European Union: 2013 edition," Taxation trends 2013, Directorate General Taxation and Customs Union, European Commission.
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