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Joining the Euro Zone: From the Perspective of Emerging Europe Countries

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Sławiński A., Szkoła Główna Handlowa w Warszawie; Kolegium Ekonomiczno-Społeczne; Katedra Rynków i Instytucji Finansowych
Acta Universitatis Lodziensis. Folia Oeconomica
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2010
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vol. 239
EN
There were the two main factors behind the recent boom-bust cycles in some of the euro- zone countries. The first was the negative feedback loop between the high rate of growth in loans and a fall in real interest rate. The second was the growing use of external funding by local commercial banks. The same factors caused unsustainable lending booms in several CESEE countries. The Baltic states could not suppress the negative feedback loop between a high rate of credit growth and a fall in real interest rate because under the currency board regime they were not able to rise interest rates. However, unsustainable lending booms occurred also in these CESEE countries that had autonomy of setting interest rates, because effectiveness their monetary policy was impaired by a rapidly growing volume of foreign exchange loans. The recent experiences with unsustainable lending booms in several European countries demonstrate that the euro-zone accession countries should be equipped with a set of effective macro-prudential tools that would shield their economies from the risk of boom-bust cycles after joining the monetary union.
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Strefa euro: scenariusz alternatywny

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Sławiński A., Szkoła Główna Handlowa w Warszawie; Kolegium Ekonomiczno-Społeczne; Katedra Rynków i Instytucji Finansowych
Acta Universitatis Lodziensis. Folia Oeconomica
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2012
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vol. 273
EN
The process of European monetary integration would have been longer but much less costly, had euro zone been created at least a decade later. Had Europeans decided to extend the period of functioning of the ERM mechanism with the 15% band (introduced in 1993), central banks might have been able to use the extended autonomy of monetary policy to cope with the unsustainable lending booms before the creation of the monetary union. This might have saved Europe from paying a very high cost of the twin bank and fiscal crises. Had the tightening of monetary policy turned out to be insufficient to cope with the unsustainable lending booms in several European countries, central banks could have earlier employed macroprudential policies as a second weapon of their stabilization policy. Had the euro zone been created at least a decade later, the experiences with the unsustainable lending booms would have forced Europeans to create monetary union with a better institutional setup.
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