The ECB is also one of the parties that decide whether a given currency can be admitted to join ERM II. To take this decision, it prepares annual reports on the functioning of the mechanism. And together with the European Commission it assesses whether a country’s participation in ERM II has been sustainable.
The last wave of countries joined ERM II in 2004-05 and subsequently joined the euro area.8 From that experience, we have gained a better understanding of the regime shift that ERM II entails for participating countries. It became clear that participating in ERM II alters the economic incentives of international and local investors as well as those of the authorities of the participating countries.