Euro zone: Waiting for new member states

In the Czech Republic, hostility towards the single EU currency is growing. A survey carried out by the Prague market research institute STEM revealed that only 22 percent of the 1,245 Czechs interviewed were in favour of adopting the euro. The market researchers attribute this low level of approval to the difficulties experienced by euro zone countries over the past months. Only 29 percent of Czechs expect the introduction of the euro to improve the standing of their country, while 78 percent fear it will lead to price increases.  

The euro: A recipe for ‘stupidity’ or ‘success’?
The Czech government which came into power in the summer of 2010 under Prime Minister Petr Necas has so far also been cautious regarding entry to the euro zone. There is no target date for it in the government’s programme. According to Necas, introducing the euro at this time would be an act of ”economic and political stupidity”, since the Czech koruna allows the country to react to economic developments with greater flexibility. A number of experts doubt Romania’s target of 2015; some suspect that it is simple political manoeuvring on the basis of showing willing. After all, there is no point in closing down your options with Brussels. If, by 2015, Romania should manage to fulfil the Maastricht criteria and the requirements of the Exchange Rate Mechanism II, this will involve ”great hardship”. As Peter Havlik from the Vienna Institute for International Economic Studies (WIIW) explained to the APA, there is room for scepticism regarding the net level of government borrowing which currently amounts to more than seven percent of GDP. That the criteria really can be met was demonstrated by the Estonians who introduced the euro at the beginning of the year. However, achieving this goal during and despite the global downturn amounted to a ‘Herculean task’. From 2009, the small Baltic state cut its expenditure with a will of iron. The population groaned under the strain. GDP fell by 20 percent, wages plummeted by 25 percent and unemployment rose to over 20 percent, but the criteria were met. In 2010, Estonia’s GDP grew once again by more than two percent. According to a survey, more than two-thirds of companies doing business in Estonia see far more advantages than disadvantages in the introduction of the single EU currency. And investors have grown particularly fond of the country. In one survey, 92 percent of German companies that have already invested in Estonia said they would definitely do so again.  

Hungary out of the reckoning
By contrast, Hungary is currently nowhere near ready for the euro, with a national debt of more than 80 percent (Maastricht criteria: 60 percent). According to Eurostat, net government borrowings at 4.1 percent are also above the Maastricht criteria (3.0 percent). Only recently, the Hungarian finance minister named 2020 as a possible date for entry into the euro. Havlik expects a relatively rapid introduction of the euro in the two Baltic states of Latvia and Lithuania. They could manage it in the next three years, as they have a fixed exchange rate system without the bonus of a common currency. For the Czech Republic and Hungary, he sees a delay of at least five years as an ongoing legacy of the global downturn. Havlik acknowledges that, although in the short term countries with flexible exchange rates have withstood the economic crisis better than countries with fixed rates, euro membership represents a better medium- to long-term strategy.