In Latvia, the authorities chose not to use that option, whereas in the euro area that option is no longer available. Adjusting without the nominal exchange rate is the topic of my speech today. The loss of the exchange rate as a policy instrument has important implications for economic policies, especially in a world where countries are faced with economic shocks that require adjustment.
After discussing some conceptual issues, I will draw some lessons from the crisis for the euro area. Those lessons very clearly highlight that, in order to reap the benefits of a common currency, participating countries need to satisfy certain economic conditions. Finally, I will also reflect on Latvia’s experience.