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This work examines the political economy of exchange-rate policies in the context of the eastward enlargement of the eurozone. The analysis shows that prospective members of the EMU are likely to pass on some of the incurred Maastricht costs of convergence to the current EMU-members. The transmission mechanism is an altered exchange-rate policy that is carried out utilizing a "threaten-thy-neighbour"-strategy. The nature of the arising conflict between current and prospective EMU-members originates from both parties' admitted inclination to complete the enlargement process, complicated by their disinclination to bear the costs. The ensuing moral-hazard behaviour of the CEECs proves to be one of brinkmanship. The subsequent bargaining game results in a robust outcome most likely in terms of providing extra European funding. This may then ensure a stabilization of the CEECs' convergence toward the EMU, and a successful completion of eastward enlargement of the eurozone.

Foreign exchange rates --- Monetary policy --- Economic stabilization --- Government policy --- Fahrholz, Christian H. --- European Union countries --- Economic integration. --- Adjustment, Economic --- Business stabilization --- Economic adjustment --- Stabilization, Economic --- Economic policy --- Monetary management --- Currency boards --- Money supply --- Exchange rates --- Fixed exchange rates --- Flexible exchange rates --- Floating exchange rates --- Fluctuating exchange rates --- Foreign exchange --- Rates of exchange --- Rates --- Economics. --- Macroeconomics. --- European Economic Community lite. --- Economic theory. --- Economic policy. --- Economics, general. --- Macroeconomics/Monetary Economics//Financial Economics. --- European Integration. --- Economic Theory/Quantitative Economics/Mathematical Methods. --- Economic Policy. --- Economic nationalism --- Economic planning --- National planning --- State planning --- Economics --- Planning --- National security --- Social policy --- Economic theory --- Political economy --- Social sciences --- Economic man --- 334.151.27 --- 334.152.0 --- EEC / European Union - EU -Europese Unie - Union Européenne - UE --- 338.22 --- 339.743 <4> --- 339.92 --- 338.22 Economische organisatieleer. Economisch beleid. Economische politiek --- Economische organisatieleer. Economisch beleid. Economische politiek --- 339.92 Economische samenwerking en integratie. Tolunie--EU --- Economische samenwerking en integratie. Tolunie--EU --- 339.743 <4> Wisselkoersen. Wisselkoerspariteiten. Dubbele wisselkoers. Devaluatie. Revaluatie. Zwevende wisselkoers. Muntslang--Europa --- Wisselkoersen. Wisselkoerspariteiten. Dubbele wisselkoers. Devaluatie. Revaluatie. Zwevende wisselkoers. Muntslang--Europa --- Europees monetair stelsel --- Betrekkingen tussen de Europese Gemeenschappen en de lidstaten: algemeenheden --- Management science. --- European Economic Community literature. --- Quantitative business analysis --- Management --- Problem solving --- Operations research --- Statistical decision