Contattaci: Info swissfederalism. Very similar beginnings but many different outcomes today — that is how one may sum up the history of monetary and exchange rate policy in the postcommunist countries of Central and Eastern Europe. Yet the colorful history of the last plus years of profound economic transformation, despite its long duration and rocky character, does not provide a clear answer to whether it is worth pursuing a fully independent monetary policy at the national level in the context of an integrating Europe, or better to merge the national currency with its nearest monetary hegemon as quickly as possible — in this case, join the euro area.
So let us revisit this history in more detail. That anchor was most often, usually at the advice of international monetary institutions, a fixed exchange rate — a system in which the value of one currency is tied to another.
Rates were most often fixed to the German mark — the monetary hegemon of Western Europe — or the United States dollar. Alternatively, it could be a basket of hard currencies containing the British pound, the Japanese yen and the Swiss franc, along with the abovementioned currencies.
The Baltics, Bulgaria, Hungary and Poland chose this route. Before they could start, though, they had to devalue their artificial communist-era exchange rates, which did not correspond to reality. The idea was to unite the economically disparate parts of the country through a hard currency union like Italy had done in the 19th century.
While former East Germany avoided inflation and instability, the arbitrarily strong exchange rate drove much of its industry and labor force west, necessitating mammoth fiscal transfers that continue to this day. Cheap is over: Good and bad news for eurozone banks. That means an absence of autonomous monetary policy and reluctance to pursue it. Such was the case of Estonia and Lithuania and partly also Latvia. These countries took a fixed currency peg to the West as an economic and geopolitical insurance policy against their giant eastern neighbor.
