When it comes to inflation, ‘in’ is better than ‘out’

One of the advantages that countries outside the Eurozone have is that they can control their monetary policy. Hence, when inflation spikes, they don’t have to rely on the ECB, which has to decide on monetary policy for a diverse group of countries, but can decide on interest rates that fit their individual needs. Thus, they should have done much better during the 2022 inflation spike and should do much better in the current environment.

Rainer Martin and Piroska Nagy Mohácsi from the London School of Economics looked at the fate of the four countries of the Visegrad group (Poland, Hungary, Czechia and Slovakia) during the last inflation spike 2022.

The nice thing about these four countries is that they are all very similar economically. They are part of the single market, they rely heavily on outsourced manufacturing from Germany and other EU industrial powerhouses for their growth, and they are culturally and politically relatively similar as well. The one big difference is that Slovakia joined the Euro in 2009 and thus relies on the ECB for its monetary policy, while the other three have their own currency and their own independent monetary policy.

The chat below shows that this was to their advantage since their local central banks hiked interest rates faster than the ECB, which could have reduced the inflation spike.

Central bank policy rates of the Visegrad 4

Source: Martin and Nagy Mohácsi (2026)

Additionally, having their own currency could have been to their advantage since a devaluation of their currency vs. the Euro should have boosted their exports and thus their economic growth.

Exchange rate of the Visegrad 4 vs. the Euro

Source: Martin and Nagy Mohácsi (2026)

Yet, despite this autonomy, inflation was higher in the countries that are not part of the Eurozone than in Slovakia. Also, government deficits and GDP growth trends were about the same in Slovakia as in Poland and Czechia, with Hungary showing both larger deficits and slower growth.

Inflation in the Visegrad 4

Source: Martin and Nagy Mohácsi (2026)

The resolution to this conundrum is that the ECB is, as I have explained here, more than just the central bank of the Eurozone. It is de facto the central bank of all of Europe. Just like the Fed’s decisions influence global financial markets, the ECB’s decisions influence all of Europe, from the central European countries to Scandinavia and even the UK.

The ECB’s balance sheet is so much larger than that of any other central bank, and the ‘economic gravity’ so much stronger that all other open economies in Europe have to adjust their interest rates relative to the Eurozone to some degree or another. Hence, open economies in Europe cannot really have their own monetary policy because if they do, investors will lose confidence in the local central bank. Indeed, the study showed that during the last inflation spike, inflation expectations remained much better anchored in the Eurozone and Slovakia than in any of the other three countries. So, as far as inflation is concerned, being in the Eurozone seems better than being out of it.