The central bank gains independence, according to the requirements of the Maastricht Treaty. Major structural reforms are simultaneously announced, reaffirming the government s commitment on Greece joining EMU in year 2001.
Interest rates decline across the yield curve.
Downward sloping long-term yield curve indicates the market expects further interest rate reductions. Drachma depreciates by less than the announced devaluation. Stock market rallies, boosted by the devaluation, the increased probability of Greece joining EMU and the prospects of consolidation in the banking sector. Inflation expected to rise temporarily in 1998 as a result of the devaluation, but inflation target for 1999 remains consistent with the requirement of meeting the inflation criterion of the Maastricht Treaty in 1999.