The Euro and the Exchange Rate Regimes of the South East European Countries

As analysed in previous chapters, the countries of SEE have employed diverse exchange rate regimes, which were the result of different circumstances in each country. Among other things, these regimes reflect the extent of progress in the transition process, the preferred approach to stabilization as well as the authorities’ reaction to economic shocks. As a matter of fact, with respect to current exchange rate arrangements, one can see that basically there are two types of exchange rate regimes in the region. More specifically, three countries have fixed regimes – Bulgaria, BH and FYROM – and the first two of these operate on a currency board arrangement while the third has a de facto peg arrangement. The remaining four economies prefer a managed floating regime. Furthermore, it must be pointed out that two territories of Serbia and Montenegro, namely Montenegro and Kosovo, have shifted to euroization, which essentially constitutes an irreversible peg; they have unilaterally adopted the euro as ‘legal tender and the sole official currency’.1 Overall, the chosen regimes manifest not only the degree of willingness but also the extent to which the economic circumstances in some countries allow the policy-makers to rely on greater exchange rate stability as a basic tool for macroeconomic stabilization.