From the hard franc to the euro

Belgium spent the 1990s tying monetary policy to Germany's. From 1990 the National Bank of Belgium followed a deliberate 'hard franc' policy, keeping the franc's central rate against the Deutsche mark essentially fixed so that Belgian interest rates tracked German ones. The policy imposed discipline at a time when public debt was above 130 percent of GDP, and it narrowed the interest gap with Germany as markets came to trust the peg. That credibility helped Belgium meet the Maastricht criteria despite its debt burden, and it entered the euro area at its launch on January 1, 1999, after which the Eurosystem, in which the National Bank of Belgium is a member, took over interest-rate setting. The long run of low and stable inflation visible in Belgium's charts from the mid-1990s reflects this anchoring to German and then euro-area monetary policy, while automatic wage indexation kept domestic price pressures closely tied to euro-area inflation.