ABSTRACT
To recapitulate: Finland has officially declared that it wants to be among the first to join European Monetary Union (EMU). The old, inflation-devaluation policy regime has been discredited and arguably cannot be continued. Therefore, the future belongs to fixed exchange rates. Because the policy of unilaterally pegging the markka was not credible, joining EMU seems the only route to exchange rate stability and policy credibility. Clearly, Finland should be an EMU enthusiast. But in fact, Finland is a reluctant enthusiast. The underlying logic is that the devaluation window is known to exist as a way of controlling real wages, so nominal wages and prices in Finland have tended to grow faster than in competing countries. The main strategist in Finland's central bank was emphatic: Finland had to choose between inflation and integration. In Finnish discussions of EMU, the idea that fixed exchange rates would be irrevocable has dominated. Considering Finland's economic history, nothing could be more natural.
