@techreport{Fahrholz2003Strategic,
abstract = {Exchange-rate policies of Central Eastern European Countries (CEEC) have often
been a subject matter. Yet, some new insights in terms of political economy
considerations upon exchange-rate policy are provided. It is pointed out that it is
more appropriate to analyse exchange-rate policy in course of Exchange Rate
Mechanism II (ERM II) with regard to a changing incentive structure. In doing so,
considerable moral hazard problems become apparent.
ERM II shall provide for an adequate level of convergence between prospective and
current members of European Monetary Union (EMU). However, this institutional
arrangement and, particularly, its impact on the incentives for exchange-rate policy
making might enable CEEC to load considerable costs of convergence onto current
members. Accordingly, the phase of ERM II is considered to be a bargaining on the
distribution of costs of convergence between prospective and current members of
EMU. In return, accession countries would offer to maintain public support for
European integration. The CEEC? leverage in this bargaining rests on brinkmanship,
i.e. putting exchange-rate regimes at risk, thus possibly undermining the according
public support.
This paper delineates the basic assumptions and conditions for successful
brinkmanship, points out the specific transmission mechanisms, and characterises
this kind of exchange-rate policy as ?threaten-thy-neighbour?. Overall analysis results
in a cautious outlook on probable effects of such strategic exchange-rate policies on
European institutional and economic matters.},
author = {Christian Fahrholz},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {E0; F0; 330; brinkmanship; exchange-rate policy; Wechselkurspolitik; Europ\"{a}ischer W\"{a}hrungsverbund; Wechselkursrisiko; Public Choice; Moral Hazard; EU-Erweiterung; Europ\"{a}ische Wirtschafts- und W\"{a}hrungsunion; Osteuropa; EU-Staaten},
language = {eng},
number = {14},
title = {Strategic Exchange-Rate Policy of Accession Countries in ERM II},
type = {Ezoneplus working paper},
url = {http://hdl.handle.net/10419/22129},
year = {2003}
}
