Comment

Abstract

At their Mondorf (Luxembourg)-meeting on 14 September 1997, the EU ministers of finance and heads of central banks agreed upon fixing bilateral exchange rates of their currencies in May 1998, that is to say, in advance of stage three of European Monetary Union (EMU). In a recent strand of papers, De Grauwe and coauthors turn their focus on problems of different proposals of how to set these conversion rates for the third stage of EMU. Different proposals take EMS central rates, market rates at the date of announcement or on the last day of stage two, an average of past or past and future market rates (which is frequently called the Lamfalussy rule though the latter mentioned it only a few times) and forward rates as their basis. By his current paper, De Grauwe convincingly contributes to a significant reduction in this large number of possible options how to set the irrevocable conversion rates of the currencies of the EMU member states.¹ Moreover, he is absolutely right in paying special attention to credibility-enhancing announcement solutions, as setting the final conversion factors no sooner than the last trading moments in 1998 will probably lead to serious problems after EMU will have been started. Since he deserves great merits for both jobs, critical comments should only concern some minor points. These points are actually intended to be possible suggestions for further discussions.