Exchange rate linkages and strategies of new eu entrants

The objective of this paper is to briefly present the current linkages that the eventual future member states of the European Union have with the common European currency area, the Euro area. Under given circumstances a hybrid system of exchange rate policy is proposed for the new EU entrants. This work is structured as follows: an introductory section briefly presents the set‐up of the current enlargement wave; a second section presents the European Monetary Union convergence criteria and the current status of the candidate countries concerning these benchmarks; a third section presents the economic rationale behind EMU; a fourth section presents the current linkage strategies of the candidate countries; and the fifth section questions what an optimal strategy could be for the new entrants. The study ends with the proposal of an Exchange Rate Mechanism 2 type of strategy as conclusion.

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