European Monetary Union
Narrowing the bands

The criteria established in the Maastricht Treaty for the transition from Stage Two to Stage Three of European Monetary Union include the requirement for a participating country to maintain its position in the `normal' bands of the ERM for at least two years, where the accepted interpretation of `normal' has been `narrow' (2.25%). In Discussion Paper No. 928, Research Fellow Michael Artis considers the implications of the speculative crises of 1992 and 1993 and their resolution in the form of the present `broad-bands' ERM for countries seeking to meet this criterion. He investigates whether the accepted interpretation of this criterion is well founded and, if so, what policies must be pursued, in the light of recent experience, in order to satisfy it. He concludes that the European Monetary Institute should be given greater powers of decision and recommendation over monetary policy than envisaged under the Maastricht Treaty.

Michael Artis presented this paper at an April joint discussion meeting with the European Centre for Advanced Research in Economics (ECARE), Université Libre de Bruxelles, reported in more detail in this issue of the Bulletin.

Stage Two: Feasible Transitions to EMU
Michael J Artis

Discussion Paper No. 928, March 1994 (IM)