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Anchor, float or abandon ship: exchange rate regimes for the accession countries

Author

Listed:
  • Willem H. Buiter

    () (European Bank for Reconstruction and Development, London (Great Britain))

  • Clemens Grafe

    () (European Bank for Reconstruction and Development, London (Great Britain))

Abstract

The paper considers alternative exchange rate regimes for the East Europeanaccession candidates, both prior to EU accession and following EU accession but prior to EMU membership. We conclude that, from an economic point of view, EMU membership should be as early as possible. There is, however, a risk that prevailing interpretations of the inflation and exchange rate criteria for EMU membership could lead to unnecessary delays in EMU membership for the accession countries. Theexchange rate criterion for EMU membership requires that the candidate "has respected the normal fluctuation margins provided for by the exchange ratemechanism of the European Monetary System without severe tensions for at least the last two yeas before the examination." Both this text and the precedents of Finland, Italy and Greece, support the view that the exchange rate criterion can be satisfied without two years of formal ERMII membership. Insistence on at least two years of formal ERMII membership for the accession countries, would result in an unnecessary, costly and potentially risky stay in EMU purgatory.

Suggested Citation

  • Willem H. Buiter & Clemens Grafe, 2002. "Anchor, float or abandon ship: exchange rate regimes for the accession countries," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 55(221), pages 111-142.
  • Handle: RePEc:psl:bnlaqr:2002:21
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    More about this item

    Keywords

    EMU; Exchange Rates;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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