BERLIN – Whether the European Union’s newest members in the east would rapidly move to ditch their moribund currencies for the euro has been a favorite topic of speculation among observers here ever since the economic crisis first hit the region last fall.
The European Central Bank, which sets monetary policy for the 16-member eurozone, sought to quash such speculation Monday. The ECB says it will not relax euro entry rules for Eastern European countries such as Poland and Hungary so that they can adopt the single currency more quickly.
The eurozone is not an easy club to get into.
Countries must meet a host of stringent criteria that they ECB lays out, including: low inflation, stable exchange rates, and, most significantly, public debt below 3 percent of gross domestic product. Most countries in the region would fail to meet that last one alone.
The ECB is reacting to a recent article in the Financial Times newspaper that reported an internal memo from the International Monetary Fund, which advocated euro adoption for Hungary and Poland without full membership in the eurozone. They would be like half-members, able to print and use the euro currency but not hold seats on influential monetary policy boards.
When you look at how much value some of the Eastern European currencies – like Hungary’s forint, Poland’s zloty, and Romania’s leu – have lost against major currencies like the dollar and euro, and how relatively better Slovenia and Slovakia, both eurozone members, are bearing up in the crisis, it would seem easy to make the case for swift euro adoption. Even Iceland and other Scandinavian countries are talking about it.
As the thinking goes, it would be a lot harder for a country to collapse financially if it was a member of a much broader currency zone comprised of larger economies, with monetary policy controlled by a central authority, in this case the ECB. As Vasily Astrov of the Vienna Institute for International Economic Studies puts it, “If you have the same currency as Germany and France and you are a very small country, then even if you have big problems in your country this will be diluted so to speak by the economic performance of the other partners.”
However other economic experts, like Anders Aslund of the Peterson Institute for International Economics, warn of the dangers of adopting the euro too early. “You can say quick euro adoption is very dangerous,” he says, “because it will lead to inflation. Smaller countries could get into other problems that they can’t handle.”