Tags: EU | Euro | Outsiders

Some Euro Zone Applicants in Less of a Hurry Now

Tuesday, 11 May 2010 10:32 AM

 

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Joining the European Union's club of nations with a common currency has long been a goal of most EU countries still not using the euro. But in the wake of the euro zone's debt crisis, some outsiders are in less of a hurry that just a few weeks ago.

The benefits of the euro appear less clear than during the first months of the global financial turmoil in 2007 and 2008, when smaller members were protected against wild swings in exchange rates.

And the downsides have come into sharper focus over the past few months thanks to Greece's near-bankruptcy: Athens faces years of draconian cutbacks in return for its 110 billion euro ($142.16 billion) bailout package, under conditions considerably harsher than the conditions imposed by the IMF last year on Hungary and Romania — part of the 27-member EU but not the 16-country euro zone — in exchange for their rescue loans.

Greece can't devalue its currency, and will have to force down wages and prices in an ugly round of government-sponsored deflation — for years. Hungary and Romania, however, simply let their currencies drop to regain competitiveness compared to their neighbors — painful, but a quick adjustment compared to what Greece faces.

And the general air of panic and crisis around the euro — with the once-theoretical topic of whether government debt woes could cause it to break up becoming an everyday theme — have also weighed against its advantages, such as easier crossborder trade and closer integration into Europe's dominant economic bloc.

Near-bankrupt Greece's agony is now easing, with its borrowing costs falling sharply and stocks rallying after the European Union agreed on the financial package to contain the continent's spreading debt crisis.

Still, the euro remained weak after an initial post-bailout spike, trading at $1.2687 early Tuesday.

The near-meltdown has given aspiring euro zone members food for thought — and euro skeptics additional ammunition.

"The euro zone has questions to ask of itself," said normally euro-friendly Polish Prime Minister Donald Tusk late last week, adding that as of now, joining the 16-nation club "was not a priority."

Announcing Bulgaria's plan to strive for adopting the euro was on hold, Prime Minister Boiko Borisov acknowledged last month that the Greek crisis had contributed to his decision.

Czech President Vaclav Klaus — perhaps the most anti-EU head of state of all European Union members — invoked the turmoil in Athens to declare: "The project of the common European currency's creation has gone bust a long time ago."

In Britain, which has voluntarily stayed out of the zone and where anti-euro sentiment is especially strong, the Conservative party won weekend general elections in part on rhetoric focusing on the Greek crisis, with euro skeptic party leader David Cameron suggesting the Tories were the most committed to preventing Britain from adopting the currency.

"With Greece so much in the news, I can guarantee you that I would never join the euro," he said during a televised campaign debate. And George Osborne, Cameron's pick for Treasury chief recently declared: "Thank God we are not in the euro."

Street sentiment is some zone outsiders also now is anti-euro, in part because of the Greek financial tragedy.

An April poll of the CVVM agency showed 55 percent of the 1,053 respondents aged 15 and older against adopting the currency with 38 percent for with 7 percent undecided. The survey had a margin of error of 3 percentage points.

"Greece should drown and we should never join the euro zone," said Polish journalist Stefan Kawalec, 52, in Warsaw, while in Sofia, Bulgaria, translator Eli Dimitrova declared: "The current mess in Greece foretells a grim future for the euro."

Countries that joined the European Union commit by treaty to also join the euro — unlike Britain, which negotiated an opt-out. But meeting the financial requirements to cut debt, deficits and inflation can take years, and the crisis has made many only too willing to see it put off further.

Still, some of those in non-zone nations are hurting, even if they are not footing the tax bill of bailing out Athens.

In Budapest, Zsolt Kerecsen expects his monthly mortgage payments to rise at least in the short term as his bank passes on the costs of the depreciating Hungarian forint against the Swiss franc. Like millions of others in Hungary and elsewhere, the 35-year-old software developer took advantage of low Swiss interest rates — good in times of stability, bad in times like these, as the Swiss currency strengthens because of its safety.

"Banks waste no time in making customer's payments reflect the forint's exchange rate, especially when we have to pay more," he says.

On a national level, some EU members continue to aspire to quick euro zone membership. Estonia remains gung-ho about its prospects of joining next year.

Formally, the country meets all the criteria: At 7.2 percent of gross domestic product, its debt is the lowest in the EU; the third-lowest deficit at 1.7 percent of its GDP, and prices that fell by 0.1 percent last year. Estonia in fact is the only European nation to meet all euro zone membership rules — none of the 16 nations already using the euro do.

But in the wake of the Greek crisis euro zone members wary of having to dig deeply into their coffers for even more bailouts appear to be setting the bar higher for new aspirants.

Olli Rehn, the EU Commissioner for Economic and Monetary Affairs, last week warned the Estonians that their bid to join was "not a done deal." And because of the Greek crisis, European Central Bank executive board member Juergen Stark is reportedly pushing for tougher membership criteria that Estonia would not be able to meet.

Estonian politicians are crying foul.

"You don't change the rules in the middle of the game," said Estonian President Toomas Hendrik Ilves.

Such caution is fed by fears from the euro zone's richer nations that Spain, Portugal and Italy might next in line for expensive bailouts that could further strain the euro zone's governments.

"Contagion to other risky markets have raised the question as to whether the euro zone is really ready to grow beyond its current members," write Danske Bank analysts Lars Christensen and Viloeta Klyviene. "In particular, some members are acting in ways that the core-EU countries, such as Germany, consider to be extremely irresponsible.

"Therefore, the real question is not whether Estonia is ready for the euro, but rather whether the euro zone is ready for Estonia."

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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