engleski

Euro zone Debt Crisis, Exchange Rate Policies and Accession to the European Monetary Union

Although the dilemmas on exchange rate policies and regimes are widely debated in international finance, recent financial crisis puts a new light on the subject. Exchange rate policies (and, consequently, exchange rate and monetary regimes) provide different levels of defending measures in periods of crisis. The euro zone debt crisis brings new dilemmas on the pros and cons of euro zone membership, including the (national) choice of exchange rate regime. Although the crisis management of European central bank and other European institutions provided numerous rescuing financial and economic programmes, member countries were unable to defend themselves with policies and instruments that would include the exchange rate. Although they did not leave the euro zone, consequences of the crisis on their economies raise doubts on effects of monetary union membership, especially in terms of crisis. Special interest is given to the currency board and quasi currency board systems and the possible changes of their exchange rate strategy in terms of (euro zone) debt crisis. E(M)U accession was the ultimate goal for former transition countries, but the process did not solve their structural problems. Current supra- and national exchange rate regimes resulted in different economic strategies. Although at the beginning of euro zone debt crisis, the fixed regimes (mostly in form of currency board arrangements but also in different de facto fixed regimes) experienced strong declines in terms of growth and raising debt and unemployment rates, their exchange regimes remained unchanged. Many previous crises resulted in massive exchange rate regime changes, but this was not the case with the Great Recession. Without efficient defending strategies, “fixers” relied on internal devaluation, public spending cuts and other politically unpopular and economically painful austerity measures.

exchange rate policy, exchange rate regime, European monetary union, currency board arrangement

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