Government turns attention again to euro adoption

VILNIUS - The government on Feb. 25 decided to establish the Commission on the Euro Adoption Coordination, to be led by the prime minister, and including the minister of finance and the chairman of the board of the central bank, reports ELTA. Finance Minister Rimantas Sadzius stressed the importance of the information provided to the public about the euro adoption process.

“We will have to work seriously on this plan. Let’s admit that currently public attitude towards the euro has changed (…). I think that public education issues will be resolved within current public information budget limits,” said the minister of finance.

Sadzius admitted that one of the major euro adoption threats is the fear about unreasonable growth of prices. However, the minister urged calm, as the government will seek to reach an agreement with business representatives ensuring that prices will not grow without any economic reason.
“Without economic justification for price increases, we should find agreement with business - we expect to sign certain agreements between the state and business associations as well as individual large businesses, so they follow certain rules of good behavior,” said Sadzius.

In order to adopt the euro, Lithuania must meet the Maastricht criteria. This means that the fiscal deficit should not exceed 3 percent of gross domestic product (GDP) and public debt should not exceed 60 percent of annual GDP. The PM says that this criteria will be checked next year in late February, early March.
Lithuania’s GDP is predicted to grow by 3.1 percent this year.

Poland has delayed setting a date for euro adoption until after a general election in 2015, when Prime Minister Donald Tusk said all requirements to switch currencies will have been met, reports Bloomberg. Setting a date now would be “pointless and illogical” and the government should focus instead on preparing the economy, President Bronislaw Komorowski told reporters in Warsaw on Feb. 26 before meeting the Cabinet to discuss the nation’s euro-adoption plans. The country is moving toward that goal in “a calm and determined way,” Tusk said after the meeting.

The European Union’s largest eastern economy revived a debate about euro membership, shelved three years ago, amid signs the currency union’s crisis is waning. Making a decision so close to a parliamentary election risks turning into a political flashpoint, said Marcin Mrowiec, an economist at Bank Pekao, a unit of UniCredit.
“It’s good that the government and the president are not over-enthusiastic about setting the date,” Mrowiec said. “At the same time, connecting the euro discussion with the general election could end up being a trap if it becomes a divisive focus of the campaign.”

To adopt the euro, countries must meet conditions on deficit, debt, inflation and interest rates.
Poland, with government debt already below the limit of 60 percent of gross domestic product, will meet the “key criterion” of reducing its deficit to less than 3 percent of economic output before 2015, Tusk said. The shortfall narrowed to 3.5 percent last year from 5 percent in 2011, according to the European Commission.
After presidential and parliamentary elections in 2015, it should be clear whether the country meets all the requirements and if there is enough parliamentary support to push through the necessary constitutional amendments, Komorowski said.

That means Poland probably won’t adopt the euro before 2019, Piotr Bujak, chief economist at Nordea Bank’s Polish unit said on Feb. 26.
Fifty-eight percent of Poles are against euro adoption, including 39 percent who said the country should never join the currency union, according to a Nov. 8-13 survey by the polling company TNS OBOP, which asked 1,000 people, the PAP news service reported.

Unlike the U.K. and Denmark, Poland and other former communist nations that have joined the EU since 2004 agreed to eventually adopt the euro. Slovenia and Slovakia have switched to the euro. Latvia plans to join next year, becoming the euro’s 18th member.
The debate comes at the time when financial markets are gripped by fresh concern that the region’s debt crisis may worsen.

The euro didn’t cause the debt crisis and adopting the currency is a “sine qua non,” or an indispensable condition, for Poland’s competitiveness in the longer term, Tusk said at the conference today. “We favor Poland taking part in European integration,” Tusk said. “The euro is the axis of this integration.”