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

Author

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  • Slawomir Bukowski

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.

Suggested Citation

  • Slawomir Bukowski, 2008. "On the road to the euro zone. Currency rate stabilization: experiences of the selected EU countries," Quaderni del Dipartimento di Economia, Finanza e Statistica 50/2008, Università di Perugia, Dipartimento Economia.
  • Handle: RePEc:pia:wpaper:50/2008
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    File URL: http://www.ec.unipg.it/DEFS/uploads/qd50web.pdf
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    Cited by:

    1. Mirella Damiani, 2010. "Labour regulation, corporate governance and varieties of capitalism," Quaderni del Dipartimento di Economia, Finanza e Statistica 76/2010, Università di Perugia, Dipartimento Economia.
    2. Stefano Herzel & Marco Nicolosi & Cătălin Stărică, 2012. "The cost of sustainability in optimal portfolio decisions," The European Journal of Finance, Taylor & Francis Journals, vol. 18(3-4), pages 333-349, May.
    3. Davide Castellani & Fabio Pieri, 2011. "Foreign Investments and Productivity Evidence from European Regions," Quaderni del Dipartimento di Economia, Finanza e Statistica 83/2011, Università di Perugia, Dipartimento Economia.
    4. Silvia Micheli, 2010. "Learning Curve and Wind Power," Quaderni del Dipartimento di Economia, Finanza e Statistica 81/2010, Università di Perugia, Dipartimento Economia.

    More about this item

    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.;

    JEL classification:

    • F - International Economics
    • F3 - International Economics - - International Finance
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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