After EU enlargement, eyes turn to euro hopefuls

Many of the 10 new states which joined the EU on May 1 have expressed a determination to benefit as soon as possible from the even greater economic ties which euro entry will bring.

But top EU officials and central bankers have urged the new EU states not to rush to embrace the single currency, which involves first spending two years in the euro waiting room known as the Exchange Rate Mechanism (ERM-2).

Smaller countries are expected to be ready to join the euro first, sometime around 2008.

"Estonia and Lithuania have indicated they will join ERM-2 before August," said Commission spokesman Gerassimos Thomas.

His words were echoed by European Central Bank executive board member Tommaso Padoa-Schioppa, speaking in the Estonian capital Tallinn.

"We cannot predict countries' intentions, but we see maybe two to four countries seeking entry into ERM-2 in the very near future," the Italian ECB official told a conference on the euro.

The biggest EU newcomers, Poland, the Czech Republic and Hungary, are likely to wait longest due to problems in cutting budget deficits to the required level of three percent of gross domestic product (GDP).

Padoa-Schioppa said there would be no exceptions for the new EU states from the rules for ERM-2 entry.

On the other hand, the Commission said they would be allowed longer to reduce budget deficits to the EU ceiling than current EU and euro zone states.

The Commission, watchdog of EU budget rules, expects several of the 10 newcomers to top the budget deficit ceiling.

"For these countries, there are special circumstances so they will not have to reduce deficits the year after, but rather in line with timetables in their convergence programmes," Thomas told reporters. Convergence programmes are medium-term budget plans submitted by countries outside the euro zone.

As well as meeting tests for inflation, interest rates and budget deficits, entering ERM-2 will mean they have to hold their currencies within narrow trading bands against the euro.

Once a formal application is submitted, the EU's Economic and Financial Committee of national finance officials and central bankers normally meets on a weekend to set the central parity for a national currency against the euro.



Source: Reuters