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World / Brussels briefing Print article | Email
New members told not to rush into currency
By George Parker in Brussels, John Reed in Warsaw and Robert Anderson in Prague
Published: October 9 2002 19:58 | Last Updated: October 9 2002 19:58

Brussels may be holding open the door to 10 new European Union members in 2004, but there were warnings on Wednesday that the candidate countries should not rush to join the euro.

The 10 new EU members have agreed to join the single currency at the earliest possibility, but economists believe some countries would be better off to wait before taking the leap.

Slovenia, Cyprus, Hungary, Malta and the Baltic states are expected to be among the first to join the euro, with the earliest entry date likely to be 2006.

However, the reports by the European Commission confirm that some countries remain many years away from being ready to join a currency club with a single interest rate and exchange rate.

Pedro Solbes, the EU's monetary affairs commissioner, warns that each country needs to make fundamental economic reforms before joining the euro.

In his last major speech on the subject, in September last year, Mr Solbes said: "The euro is already proving its worth within the EU. It is not surprising that prospective candidates should want to join as soon as possible.

"However, it is essential that joining the euro is not seen as an end in itself. The ultimate objective is full and successful economic integration."

Mr Solbes fears that if the new members are too quick to throw away their monetary tools - exchange rate and interest rate policy - they will find the transition to the euro difficult to manage.

Under EU rules, the new member states must meet the so-called Maastricht criteria before they can join the euro, with a deficit of below 3 per cent of gross domestic product, a national debt below 60 per cent of GDP, and have inflation firmly under control.

They must also have a fully independent central bank and be a member of the revamped Exchange Rate Mechanism.

The last requirement stipulates that the currency of a euro candidate must be a member of the ERM for at least two years and within a 15 per cent fluctuation band against the euro. Hence any country joining the EU in 2004 could not realistically join the euro until 2006.

Poland, the biggest of the candidate countries, insists it will be ready to join the euro in 2006, despite warnings by some economists that it may be unable to meet the Maastricht criteria.

On Tuesday a working group formed by Poland's central bank and finance ministry issued a joint statement saying that "the intention of the government and National Bank of Poland is the pursuit of economic policies that will ensure Poland's meeting of the nominal convergence criteria of the Maastricht treaty in 2005."

The Czech Republic will only be able to adopt the European single currency in 2007 at the earliest because of its huge budget deficit, the country's new finance minister has admitted.

"We aim to join before 2010 and I'll do my best to achieve this," Bohuslav Sobotka, finance minister, said in an interview with the FT last month. "We would like to comply with the Maastricht criterion for public finance deficits in 2007."

Additional reporting by Rafael Behr in Riga

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