Regional round-up
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Emerging Markets

Regional round-up

Joining the euro area isn’t quite as easy as maybe everyone hoped. Politics and economics are holding entry back

Joining the euro area isn’t quite as easy as maybe everyone hoped. Politics and economics are holding entry back


In Poland there is no official entry euro area target date. The Donald Tusk administration has said that Poland will be ready for euro adoption in 2012, however, politicians in the former government are broadly against such a move. 

“The current government has been inclined more toward early euro adoption, but the political parties that formed the former government and current president Lech Kaczynski have been rather euro-sceptical, so there could be political problems in the process of euro adoption,” says Lubos Mokras, an analyst at Ceska sporitelna, who believes that 2013 is a realistic entry date. 

Hungary, which as early as 2002 concluded that the country would benefit from early euro adoption, has the political will to join the single currency bloc, but has failed to meet the Maastricht criteria. Inflation

“Policy-makers have been supporting the earliest date possible for joining the single currency,” says Orsolya Nyeste, an analyst at Erste Bank Hungary in Budapest. “However, much stronger fiscal consolidation, the implementation of structural reforms and a higher level of real convergence are essential to tame future inflation risks when the country joins the euro area – 2014 seems to be the earliest possible date for Hungary to join the monetary union.” 

The biggest obstacle to euro adoption in the Baltic states of Estonia, Latvia and Lithuania is meeting the inflation criterion. Because of their pegged currencies, inflation in the Baltics is much higher than in those countries such as Slovakia with floating currency regimes, where currency appreciation helps mitigate inflationary pressures. 

Although all three countries have been in ERM II for longer than the two-year period required for joining the euro area and there is broad support for euro adoption, the taming of double digit inflation levels in the Baltics will require at least another two years before the countries are likely to meet the inflation criteria, and satisfy EU officials that they will be able to keep a lid on price rises once they join the euro. 

Bulgaria and Romania, which only joined the EU in 2007, are both some way from euro adoption. Dumitru Dulgheru, an analyst at Banca Comerciala Romana says: “Although Romania has made good progress in terms of convergence in the last few years, there is still a long way ahead.” He says recent currency volatility and rising inflation have reduced the Romanian central bank’s optimism regarding planned euro adoption in 2014. 

Nevertheless, Dulgheru believes that if the government presses ahead with economic reforms and restructuring of the economy, it is still possible that Romania can achieve its 2014 target date for euro area membership. “The next three years will be crucial for that to happen,” he says. —G.N.

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