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Common currency prospects continue to captivate Baltic leaders

Feb 08, 2006
From wire reports

TALLINN-RIGA - The Baltic states' dream of adopting the euro remained at the center of attention last week, as another top European official expressed doubt about preparedness while Baltic leaders said they were determined to make their deadlines.


Gunther Verheugen, vice chairman of the European Commission, said in an interview last week that he was skeptical about Estonia adopting the euro in 2007. Along with Lithuania and Slovenia, Estonia wants to be among the first new member states to trade in its own currency for the common one.

"When you highlight the three candidates who want to launch the euro next year, it is striking that Estonia is having quite a few problems," Verheugen told The Financial Times Deutschland.

"As far as the expansion of the euro zone is concerned, we should be very careful," he said. "It is important that the criteria are met exactly. We won't be conducting any experiments."

The three countries are currently participating in the ERM-2 mechanism, which is essentially a temporary waiting period before accepting the euro. During that period, candidate countries have to meet certain criteria, including low budget deficits and inflation. Estonia, where the consumer price index grew some 4.1 percent last year, is struggling with inflation.

Verheugen's comment echoes other calls by EU officials and analysts that the planned expansion of the eurozone might be less ambitious than originally thought. Even Lithuania, where inflation reached 3 percent last year, is riding a razor's edge.

Responding to a recent editorial in The Financial Times that warned against hastily allowing new poorer members into the zone, Estonian Prime Minister Andrus Ansip said that a country's preparedness to switch to the euro does not depend on its relative wealth.

"Estonia's splendid economic development over the past 14 years in the currency board framework confirms this conviction. In the last decade, Estonia has been among European countries whose wealth has increased the fastest," Ansip said.

In the monetary union, economic requirements are the same as they are with the currency board, the prime minister explained. "So we could say that Estonia is even better prepared for accession to the eurozone than countries implementing an independent fiscal policy with the habit of actively using the exchange rate lever in their economic policy."

Indeed, even opposition politicians in Estonia admit that the government's hands are tied, though there are certain stopgaps that could be adopted to curtail price-growth. (See interview on Page 18.)

Meanwhile, Latvia's prime minister said the country would not change its plans to switch to the euro in 2008 until the European Commission decides on Estonia, Lithuania and Slovenia. He hinted that there might be a political decision.

"We will see what criteria will be applied to those countries," said Aigars Kalvitis. "If they are not admitted to the eurozone first, even if they were not in full compliance with the Maastricht criteria, it's clear that there are some political aspects involved. So the Latvian government doesn't intend to adjust its plans until a decision is made about those countries."

Latvia is dogged by high inflation 's the highest in the EU 's and there are few analysts who believe that the country could be ready by 2008.
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