Pegging the CEECs Exchange Rates to the Euro

• Laurence Boone

  Author

• Mathilde Maurel

  Author

The peg of the euro to the CEE exchange rates can be assessed using the criteria for entry into the European Monetary Union (EMU). This approach takes into account the enlargement process that started in June 1993 in Copenhagen, where a group of CEE was selected for admission to the EU. Fiscal discipline according to the Maastricht criteria supports the transition period. But the question of whether currency pegging helps to further stabilise inflation can only be asked when growth starts and inflation does not stem mainly from relative price fluctuations. Business cycle correlation analysis helps to address this issue. The correlation of industrial production and unemployment cycles of the CEE and the EU shows their deeper integration with Germany than with the EU, and that currency pegging is the right policy for the CEE countries.

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