The eurozone must enact sweeping fiscal and governance reforms before EU states in central and eastern Europe will consider adopting the single currency, the region’s leading central bankers have warned.
Poland’s central bank governor Marek Belka told delegates at the EBRD’s annual meeting in Astana that the onus was now on the eurozone to prove its long-term stability rather than on non-euro states striving to meet Maastricht criteria, that has been focus to date.
“The Maastricht criteria are important, but they’re less important than what has to happen within the eurozone to make joining the eurozone attractive again for newcomers.
“So it is not only us that has to put our house in order. The eurozone also has to put its house in order.”
Other policymakers in the region have voiced similar concerns.
Vladimir Tomsik, vice-governor of the Czech central bank, told Emerging Markets that public support for euro entry was “much weaker” than when the country joined the EU in 2004. He said the current crisis had raised concerns among the nation’s policymakers about the wisdom of adoption given the current uncertainty.
“Given the state of public finances on the one hand and the issues in the eurozone on the other hand, it is obvious that a potential Czech entry is not on the agenda,” he said.
Tomsik said it was clear the rules of the euro system had to be tightened up. “An optimal currency area isn’t just about internal transfers,” he said. “You need a genuine competitive market across that entire area.”
The same went for the policing of eurozone deficits. “We have rules for the euro system, but they’ve been ignored. We need to do more than tighten up the rules, we need to know how to enforce them.”
While joining the single currency would reduce exchange rate volatility, it would also involve sacrificing the country’s monetary policy autonomy. The economic case for the single currency was not clear-cut, he added.
He said that he saw the decision as to the speed or eventual likelihood of euro adoption ultimately as a political matter.
“It is clear that the eurozone is not and has never been a so-called optimum currency area as treated by economic theory. So the decision whether the benefits are bigger than the costs is normative and therefore it is in the end a political decision,” he said.
Belka said Poland remained convinced of both the long-term political and economic case for joining the single currency. “It’s both politically and economically a non-option for Poland to stay outside of the eurozone forever,” he said. However, he added that the crisis had “changed the balance of costs and benefits of euro adoption”, and that Poland was “not in a rush” to join.
Leading economists acknowledge that the current eurozone crisis has prompted larger nations in central and eastern Europe, notably the Czech Republic, Poland and Hungary, to assess the fallout from the current crisis before resuming moves towards euro adoption.
Mark Allen, senior regional representative for Central and Eastern Europe at the IMF, said: “For some countries, particular larger countries [in central and eastern Europe], it will be important to know how eurozone governance problems are resolved before making the additional commitment to membership of the eurozone.”