Pressure on the European authorities to relax the criteria
for membership of the single currency for crisis-hit eastern
European countries was mounting yesterday from IFI officials,
east European nations and leading economists.
The European Commission and the European Central Bank are
resisting calls to relax the so-called Maastricht criteria for
euro entry. Policy-makers fear weakening the criteria would
damage the credibility of the euro.
But Marek Belka, director of the IMFs European
department, told Emerging Markets that the entry
procedure had to be clarified. In turbulent times,
the two-year waiting period in the exchange rate mechanism
(ERM2) is obviously debatable, he said.
The entry criteria are not clear, Belka argued.
Criteria have to be met in a sustainable way. What is
sustainable? It always entails arbitrariness, so it has to be
made clear for some of the countries in the region, what does
it really mean sustainable or unsustainable, he
If the strategy is unclear then the programme of
economic policy becomes vulnerable, and the political consensus
that is needed to support a difficult programme can suddenly
Willem Buiter, an economics professor and former chief
economist of the EBRD, said eurozone entry should be a top
priority for new EU member states. What in many causes
are ludicrous entry requirements should be waived, he
told Emerging Markets. This would remove the threat of
destabilising swings in their currencies.
They would still have debts and banking sector problems, but
would have one less problem to deal with. It would be an
Aspiring eurozone members have to keep inflation within 1.5%
of the average of the three best performers; limit the
government deficit to 3% of GDP and the government debt/GDP
ratio to 60%; maintain membership of the exchange rate
mechanism currency band for two years; and keep long-term
interest rates within 2% of the average of the three lowest
On Wednesday the Commission initiated excessive budget
deficit procedures against Poland, Lithuanian and Romanic after
those countries breached the 3% deficit rule.
Erie Berglof, EBRD chief economist, said Brussels was right
to stick to its criteria If you change the rules of the
game that has a fundamental implication for the euro.
East European political leaders and bank officials
criticised west European inflexibility on the eurozone.
Lithuanian prime minister Andrius Kubilius called for a
more co-ordinated and positive approach to the expansion of the
eurozone. He told Emerging Markets: There
needs to be some kind of special programme to achieve this
expansion ... a case by case basis is not enough.
In May 2006, the European authorities rejected
Lithuanias bid to adopt the euro after it missed the
inflation target by a hair. The ECs decision has opened
up old wounds, as the country has been deprived of much needed
liquidity and borrowers faces costly exchange rate risks.
This has heaped on concerns that the Maastricht criteria
could, in theory, demand deflation in the economies of eurozone
candidates. Latvia central bank governor Ilmars Rimsevics told
Emerging Markets: I believe that negative
inflation is also bad, therefore, that negative inflation would
be judged with a separate yardstick.