Contributing to negative external balances Another way of looking at this is to say that we are consuming and investing much more than we are saving. The Government has had a strong saving record over the last decade, and more recently the business sector has been saving too.
If the inflation-targeting country is expected to enter EMU with a specific exchange rate, there is, on the other hand, a risk of wide exchange-rate movements in the run up. With a known entry rate, the spot rate has to move in order to fulfil the interest-rate parity. This issue, trivial as it may seem, is rarely mentioned in the literature.