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Economic research bulletin (2006, No.2)
 Česká národní banka
One of the major challenges faced by the central banks of candidate countries for euro adoption is preparation for and a subsequent successful stay in the ERM II regime for at least two years while complying with the exchange rate stability criterion. This issue of the Bulletin points to the results of three papers analysing the prospects for successful sailing to the euro via ERM II as well as the risks that may emerge. Roman Horváth brings some optimism by concluding that the current levels of exchange rate variability and pressures are at the level of the euro area countries before their euro adoption, because a number of the candidates seem to be well aligned with the euro area countries. Aleš Bulíř and Kateřina Šmídková nevertheless warn that the candidates with trend real appreciation may experience problems with exchange rate misalignment in ERM II , especially if they stay longer than the minimum required period and if they accumulate high external debt during the cruise. They conclude that success in passing through ERM II is to a large extent dependent on the general success of the economies, strong economic performance being the key. Since it depends not only on domestic policies, but also on the external conditions, some element of luck is an inevitable part of the whole adventure. Luboš Komárek and Martin Melecký highlight one of the possible approaches to the estimation of the equilibrium exchange rate essential for setting the central parity before entry into ERM II – the behavioural equilibrium exchange rate (BEER ). Their estimates of exchange rate misalignments confirm that periods of low economic activity coincide with periods of an overvalued currency. Potential overvaluation therefore presents a really major risk for ERM II .
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