Countries seeking to join the euro must learn from
Greeces mistakes and maintain austerity after gaining
membership, according to the finance minister who steered the
country into the single currency in 1999.
Former Greek finance minister Yannos Papantoniou told
Emerging Markets that countries would have to maintain
tough budget controls even after they won entry into the
His warning was echoed by senior policymakers and academics
in Estonia, which won provisional approval for euro entry this
week, and its aspiring neighbours Latvia and Lithuania.
Papantoniou admitted that part of the reason for the Greek
financial crisis was that the country let its fiscal deficit
get out of control after it gained entry to the
He advised countries in central and eastern Europe to look
at Greeces experience. I dont think that
theres any need to revise the decision if such a decision
has been taken, he said.
However I would advise them to consolidate their
public finances as much as possible and be prepared to accept
the discipline of being a eurozone member in a consistent way
because that is exactly what did not happen with
He said Greece showed great discipline in the
1990s by embarking on reforms to cut inflation and current
account deficits. Once it entered it relaxed too much
with the consequences that the deficit got out of
control, he said.
So the new countries aspiring to join the eurozone
must accept they have to continue with that discipline even
after they have joined.
Lithuania and Latvia have both indicated they wish to
join the euro in 2014. Lithuanias prime minister Andrius
Kubilius told Emerging Markets: The lessons
other countries in Europe can learn from our example is the
need to build a coalition of support to cut spending and do it
But Morten Hansen, of the Stockholm School of Economics in
the Latvian capital Riga, said: I dont know if the
Baltics can teach Greece anything the lesson should
start by not getting into these imbalances in the first
Valdis Dombrovskis, Latvias prime minister, this week
said that his government was determined to meet the Maastricht
criteria in 2012 in order to meet its target of joining the
eurozone on 1 January 2014.
David Oxley at Capital Economics in London said Estonia
would be under intense scrutiny to ensure that its
fiscal position remained under control.
As in most countries in the euro-zone -
particularly in its periphery - further fiscal tightening is
likely to be needed over the coming years, he
Dombrovskis warned against any temptation to water down the
Maastricht criteria. The Maastricht criteria as they are
now are just fine, also the budget deficit criteria is just
fine, he said.
The problem is not that the Maastricht criteria were
improperly designed the problem is the most of the
eurozone countries consistently do not fulfil the criteria.
That is the problem that needs to be addressed, he