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ERM II Membership - the View of the Accession Countries

Author

Listed:
  • Lubos Komarek
  • Zdenek Cech, Roman Horvath

Abstract

With EU accession looming, a new chapter has been opened in the debate about the candidate countries' exchange rate strategies. A heated discussion has arisen in relation to ERM2 membership. The experience of the present eurozone members with ERM/ERM2 membership shows that none of them faced a significant challenge in the two-year 'evaluation' period in terms of the exchange rate stability convergence criterion. This could also be attributable to the stability policies prescribed by the Maastricht Treaty. However, for catching-up countries in the run-up to joining the eurozone, given the existing functioning of the mechanism, the ERM2 appears be of little help for ensuring exchange rate stability. The mechanism should be viewed rather as a tool for 'persuading' the markets of the appropriateness of the euro-locking rate. Since the Maastricht rules do not allow downward adjustment of the central parity within the ERM2 for two years before introduction of the euro, the authorities should be familiar with the preferred real exchange rate path prior to entering the mechanism. We conclude that countries could face large costs if they fail to do so.

Suggested Citation

  • Lubos Komarek & Zdenek Cech, Roman Horvath, 2003. "ERM II Membership - the View of the Accession Countries," Working Papers 2003/11, Czech National Bank, Research Department.
  • Handle: RePEc:cnb:wpaper:2003/11
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    File URL: http://www.cnb.cz/en/research/research_publications/cnb_wp/download/wp11-2003.pdf
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    References listed on IDEAS

    as
    1. Jan Frait & Luboš Komárek, 2001. "On the Way to European Union: Nominal and Real Convergence in Transition Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 51(6), pages 330-347, June.
    2. Katerina Smidkova, 2003. "Estimating the FEER for the Czech Economy," Macroeconomics 0303014, EconWPA.
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    Cited by:

    1. Jesús Crespo-Cuaresma & Jarko Fidrmuc & Ronald MacDonald, 2003. "The Monetary Approach to Exchange Rates in the CEECs Relations and Output Performance," Vienna Economics Papers 0313, University of Vienna, Department of Economics.
    2. Jesus Crespo-Cuaresma & Jarko Fidrmuc & Ronald MacDonald, 2005. "The monetary approach to exchange rates in the CEECs," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(2), pages 395-416, April.
    3. Vit Barta, 2005. "Fulfilment of the Maastricht Inflation Criterion by the Czech Republic: Potential Costs and Policy Options," Research and Policy Notes 2005/04, Czech National Bank, Research Department.

    More about this item

    Keywords

    EU/eurozone; convergence; exchange rate; transition.;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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