Single currency: Euro, go east!
18 February 2010
With its monetary union weakened by the crisis, the EU shouldn’t be afraid of enlarging the eurozone. Handelsblatt recommends rapidly integrating the more dynamic economies to the east, which have been scorned for too long as the weakest links in the system.
That the standing and stability of the euro could ever be enhanced by the likes of Poland, Bulgaria and Estonia seems an outlandish claim. But it’s true. Though “Polish economy” used to be a derogatory term for chaos and mismanagement, Poland has undergone a sea change since its political U-turn 20 years ago. Our eastern neighbour now happens to be the only EU country boasting economic growth in the midst of the recession.
As for Bulgaria, long deemed so corrupt that, for the first time in its history, the EU felt obliged to cut off financial aid to a member state, it is now the only EU country to meet the Maastricht criteria on budgetary deficits, even in the throes of the recession. Latvia, Romania and Hungary, on the other hand, which would have gone bust without bail-out billions from the EU and the International Monetary Fund, will not be eligible for eurozone membership any time soon.
Geared towards growth and budgetary discipline
But admitting Poland, the Czech Republic, Estonia and Bulgaria into the club would actually give Europe’s single currency a shot in the arm. In fact, German government officials now regard our eastern neighbours as more of an opportunity than a risk for the euro. These four countries would bolster the free market forces in the increasingly powerful euro area against the statist forces in southern Europe.
Not only are these eastern countries far more politically geared towards growth and budgetary discipline than Europe’s southern states, but Poland, Romania and Bulgaria, in contrast to crisis-ridden euro members like Spain, Greece and Portugal, can count on more and more funding from Brussels. That will serve to strengthen their economies, modernise their infrastructure and shore up their budgets.
An opportunity and obligation
Bringing the euro to these eastern countries is not merely a matter of their desire to join the euro area. As a matter of fact, they had to commit to that when they acceded to the EU. The Greek crisis, however, has prompted a general rethink on economic stability, and not only in the eurozone. In the face of the recession, candidates for the euro club have also begun debating the “Swedish model”: i.e. being contractually bound to join, but without having to lift a finger.
Before the recession, Poland was looking to introduce the euro in time for the European Football Championship there in 2012; that prospect has now been put further off, and not only on account of the crisis-driven growth of the budget deficit. Warsaw is now mulling whether the requisite changes to its constitution are really worth it, not to mention the painful tax reforms involved. Policymakers and economists are increasingly pointing out that the depreciation of the national currency, the zloty, has brought clear-cut competitive advantages to the country’s economy during the crisis. The same goes for other countries, too.
Euro benefits all
But the situation is different over in the Baltic states and Bulgaria, where the national currencies have long been tied to the euro by fixed exchange rates: experts recommend rapid introduction of the euro there, which would confer advantages without painful side-effects.
So the bottom line is that taking the euro east would be good for them and good for us – provided, of course, the acceding countries satisfy the euro criteria in full. But another thing has to be clear: the prospective euro countries shouldn’t have to pay the penalty for the profligacy of the Greeks or the Spanish. (Handelsblatt – all rights reserved)