Exchange Rate Policy during transition to the European Monetary Union

Countries of central eastern Europe which are candidates for accession to the European Union face fundamental challenges in the conduct of macroeconomic policies. These countries are characterized by growth rates faster than those of EU countries, along with large current account deficits and an equilibrium appreciation of the real exchange rate. In such a context, an early adoption of the euro, may be beneficial to central eastern European countries, while the ERM-II system and the Maastricht criterion on inflation may give rise to serious drawbacks for candidate countries.