Working Paper: CEPR ID: DP928
Authors: Michael J. Artis
Abstract: This paper addresses the issue of the transition from Stage Two of EMU to Stage Three. The criteria established in the Maastricht Treaty for this transition include an ERM qualification. Under this criterion a participating country would have had to maintain its position in the normal bands of the ERM for a period of not less than two years. The accepted interpretation of `normal' has been `narrow' (2.25%). The speculative crises of 1992 and 1993 and their resolution in the form of the present `broad-bands' ERM complicate the problem of satisfying this criterion. The paper asks whether the criterion on its accepted interpretation is well-founded and, if so, what policies would need to be pursued, in the light of recent experience, in order to satisfy it. A critical part of the conclusion is that the EMI must be given, by agreement, greater powers of decision and recommendation than currently envisaged.
Keywords: ERM; EMU; Exchange Rates; Intervention; Speculative Attack
JEL Codes: E52; F31; F33; F36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Compliance with the Maastricht Treaty (F55) | Stability of exchange rates (F31) |
| Speculative attacks (D84) | Destabilization of the transition process (C62) |
| Acceptance of current broad bands as normal (L96) | Elimination of need for renarrowing (H21) |
| EMI's authority (G18) | Success of the transition (P27) |
| Current fiscal criteria not being met (E62) | Hindrance of the transition (P39) |