 |
Bargaining for Costs of Convergence in Exchange Rate Mechanism II: A Rubinstein Threat Game
| |
| | Unformatted Document Text:
1
Introduction
This paper considers the Central Eastern European Countries’ (CEECs)
1
run-up to the European Economic and Monetary Union (EMU). These coun-tries have joined the European Union (EU) in May 2004. The next issuefacing the EU is the enlargement of the eurozone. CEECs are committed toentering the Exchange-Rate Mechanism II (ERM II)—an integral part of theMaastricht criteria—soon afterwards. As there is no opt-out clause for thenew EU-members, they are expected to join the EMU around the beginningof 2007. Analysis indicates that the eastward enlargement of the eurozonemight prove to be a bumpy ride for the EMU-enlargement process.
This paper analyzes the CEECs’ peculiarities along the track towards
adopting the euro as legal tender. The formation of exchange-rate policies inCEECs during their passing through ERM II is of particular research inter-est. Exchange-rate policies, particularly with respect to the prescribed fixedexchange-rate regimes (so-called soft pegs), in ERM II are generally crisis-prone. During its predecessor in the European Monetary System (EMS)the according soft pegs of its members proved to be prone to speculativeattacks plunging European exchange-rate affairs into considerable turmoil.The consequences of malfunctioning policy formation regarding exchange-rate arrangements became especially evident in the EMS-crisis of 1992-93.Erroneous policies as well as economic shocks also put transitory exchange-rate regimes of individual CEECs in ERM II at risk. However, such risksand their repercussions on the economic and the political formation cannotbe exclusively assigned to a particular CEEC. Contagion generates externaleffects in terms of spreading defaults, thereby, putting the entire Europeanintegration process at risk. A political-economic analysis points out thatCEECs may utilize this risk involved during their passing through ERM II.
Essentially, ERM II and other Maastricht criteria are in place to en-
sure an adequate level of convergence between new and old EU-members.The specific provisions of the Maastricht criteria guarantee that participat-ing countries are not too heterogeneous. However, fulfilling the requirementsof Maastricht can imply accepting particular costs in terms of output gap andunemployment. According to the provisions of Maastricht criteria prospec-tive members must bear the entire burden of these costs of convergence.
Admittance to the EMU is seemingly an adhesion contract: If CEECs
are not able to overcome the Maastricht qualification thresholds, they will
1
Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland,
the Slovak Republic and Slovenia. When analyzing hereafter prospective or new membercountries, then CEECs are meant. Cyprus and Malta are not considered, because thesecountries do not fit into the subsequently developed argumentation.
1
|
| | Authors: Fahrholz, Christian. |
|
| |
|
|
1
Introduction
This paper considers the Central Eastern European Countries’ (CEECs)
1
run-up to the European Economic and Monetary Union (EMU). These coun-
tries have joined the European Union (EU) in May 2004. The next issue
facing the EU is the enlargement of the eurozone. CEECs are committed to
entering the Exchange-Rate Mechanism II (ERM II)—an integral part of the
Maastricht criteria—soon afterwards. As there is no opt-out clause for the
new EU-members, they are expected to join the EMU around the beginning
of 2007. Analysis indicates that the eastward enlargement of the eurozone
might prove to be a bumpy ride for the EMU-enlargement process.
This paper analyzes the CEECs’ peculiarities along the track towards
adopting the euro as legal tender. The formation of exchange-rate policies in
CEECs during their passing through ERM II is of particular research inter-
est. Exchange-rate policies, particularly with respect to the prescribed fixed
exchange-rate regimes (so-called soft pegs), in ERM II are generally crisis-
prone. During its predecessor in the European Monetary System (EMS)
the according soft pegs of its members proved to be prone to speculative
attacks plunging European exchange-rate affairs into considerable turmoil.
The consequences of malfunctioning policy formation regarding exchange-
rate arrangements became especially evident in the EMS-crisis of 1992-93.
Erroneous policies as well as economic shocks also put transitory exchange-
rate regimes of individual CEECs in ERM II at risk. However, such risks
and their repercussions on the economic and the political formation cannot
be exclusively assigned to a particular CEEC. Contagion generates external
effects in terms of spreading defaults, thereby, putting the entire European
integration process at risk. A political-economic analysis points out that
CEECs may utilize this risk involved during their passing through ERM II.
Essentially, ERM II and other Maastricht criteria are in place to en-
sure an adequate level of convergence between new and old EU-members.
The specific provisions of the Maastricht criteria guarantee that participat-
ing countries are not too heterogeneous. However, fulfilling the requirements
of Maastricht can imply accepting particular costs in terms of output gap and
unemployment. According to the provisions of Maastricht criteria prospec-
tive members must bear the entire burden of these costs of convergence.
Admittance to the EMU is seemingly an adhesion contract: If CEECs
are not able to overcome the Maastricht qualification thresholds, they will
1
Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland,
the Slovak Republic and Slovenia. When analyzing hereafter prospective or new member
countries, then CEECs are meant. Cyprus and Malta are not considered, because these
countries do not fit into the subsequently developed argumentation.
1
|
|
 Convention | | Convention is an application service for managing large or small academic conferences, annual meetings, and other types of events! | | Submission - Custom fields, multiple submission types, tracks, audio visual, multiple upload formats, automatic conversion to pdf. | | Review - Peer Review, Bulk reviewer assignment, bulk emails, ranking, z-score statistics, and multiple worksheets! | | Reports - Many standard and custom reports generated while you wait. Print programs with participant indexes, event grids, and more! | | Scheduling - Flexible and convenient grid scheduling within rooms and buildings. Conflict checking and advanced filtering. | | Communication - Bulk email tools to help your administrators send reminders and responses. Use form letters, a message center, and much more! | | Management - Search tools, duplicate people management, editing tools, submission transfers, many tools to manage a variety of conference management headaches! | | Click here for more information. |
|
|
|
| |
|
|
|
