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The debt crisis of the eurozone revealed a structural problem of the single market rooted in the external imbalance problem of indebted member states. The assumption of this paper is that the current account imbalances within the eurozone are based on an intra-eurozone competitiveness disparity originated in the single currency and the heterogeneity of member state development. The mix of infi nite pegging and heterogeneity creates real effective exchange rate appreciation in the less competitive members, which further ruins their competitiveness in the EU.

Although the importance for successful transition of a monetary policy aiming at a sustainable price level has often been stressed in the academic literature, there is still ample room for further research into the choice of the exchange-rate system throughout the different phases of the transition process. This article deals with the question of how the choice of a specific exchange-rate system affects the economic success of a country in transition and, above all, its gradual integration into the European Union (EU) and European Monetary Union (EMU). It focuses on the transition process in five South-Eastern European countries (SEECs).

While there are a number of theoretical arguments in favour of capital account convertibility, or free cross-border capital mobility, in the real world cross-border trade in financial assets can in fact reduce welfare due to the effects of domestic distortions. The following paper examines the causes of the Asian financial crises of the late 1990s in this light and presents some of the lessons that would be instructive for a more effective implementation of capital account convertibility.