EU enlargement, ERM II and lessons from the Southern European countries

Abstract

The purpose of this paper is to examine the experience of convergence with an exchange rate target in the southern European economies (SEEs). We argue that their experience has much to teach new and prospective EU members. We discuss the similarities of the SEEs and the new/prospective EU members in order to establish the relevance of the experience of the former for the latter. We then go on to offer evidence on the experience of SEEs with capital flows and speculative crises in the run-up to EMU membership. We discuss the implications of these results for the institutional structure of ERM II and conclude by discussing policy options available to the new/prospective members in the light of the previous analysis.