ECB: New EU Members' Use of Euro Unlikely Before the End of the Decade
Some of the new members of the European Union angling to adopt the euro will likely have to wait until the end of the decade, the European Central Bank said Tuesday.
Citing the benchmarks needed to start using the euro, eight of the 10 new members that joined the 25-nation bloc in 2004, are unlikely to join until after 2010, the bank said in its report, prepared with the EU Commission.
Lithuania was not included in the reports since its evaluation took place earlier this year, when its chances for joining the euro were blocked because its inflation rate was considered unsustainable below 2.8%.
The reports also examined the euro-eligibility of the Czech Republic, Estonia, Cyprus, Latvia, Hungary, Malta, Poland, Slovakia and Sweden, whose residents defeated a national referendum in 2003 on whether to adopt the currency used by 12 EU members.
Of those countries, Cyprus fulfilled most of the criteria except for on exchange rates and legal compatibility, though it has submitted a draft law to its national parliament in October to change the latter.
To become eligible to join the euro, countries must be part of the exchange rate mechanism, often referred to as the "waiting room" for candidates, for two years without devaluing the national currency. Cyprus joined the ERM II in May 2005.
But the ECB warned that Cyprus had failed to make "significant progress with the implementation of structural reforms," citing that its wage growth has exceeded productivity.
Estonia remains the only country to meet the exchange rate criterion, the EU Commission said, but added that the Baltic state of 1.2 million still missed the inflation target. The nation's inflation is expected to range from 3.5% to 4.2% in 2007 and 3.9% to 4.6% in 2008.
Latvia was far from reaching inflation targets, with inflation expected to reach 4.4% to 6.3% next year and 5.4% to 5.8% in 2008.
Hungary's large budget deficit, which this year is forecast to reach 10.1% of gross domestic product is three times the EU limit for countries using the euro. The country has endured protests, some violent, since September after Prime Minister Ferenc Gyurcsany was heard on a leaked recording admitting that the government had lied about the economy to win re-election in April.
Poland must still address economic openness, and the ECB urged structural reforms there before it can use the euro. Slovakia, which meets few of the criteria, should implement structural reforms and ensure that wage growth matches productivity growth.