Euro adoption policies in the second decade–the remarkable cases of the Baltic States

Abstract

The second decade of Economic and Monetary Union (EMU), starting with the financial crisis morphing into the sovereign debt crisis, had diverging effects on member states. The Baltic States were hit particularly hard. Faced with an immediate collapse of their economies, the Baltic States were advised by international organisations to float their currencies; instead, these countries chose to speed up their commitment to join the  euro including the choice to keep the exchange rate fixed. Why? In this paper, we argue that the main reason for this decision needs to be found in the domestic politics of these three Baltic States. The domestic actors we look at include, among others, monetary authorities, government and opposition. Even when faced with strong international criticism, the three Baltic State governments chose their own path, which in this case included continuing their planned euro adoption policies even in the face of costly domestic adjustments.