Ministers get tough on euro-entry

Date: 13/04/06

Lithuania's hopes of joining the European single currency as early as next January were effectively dashed at last weekend's meeting of EU finance ministers (Ecofin), when eurozone leaders declared that they were not prepared to be flexible on the terms of entry.

With Lithuania's inflation rate expected to be too high, it now seems improbable that the European Commission will recommend early admission when it reports on Lithuania next month.

The Commission is expected to report that Slovenia does meet the criteria for euro-membership and should become the 13th country to adopt the currency.

According to the EU treaty, before member states can join the eurozone they have to satisfy requirements on public finances (deficit and debt), interest rates, exchange rate stability and inflation.

But the case of Lithuania is focusing tensions between ins and outs, between old EU states and new. The Baltic state's inflation rate is still more than 1.5% above the average of the three best in the EU.

Lithuania's Finance Minister Zigmantas Balcytis, acknowledging that his country was being regarded as "an example for the future", is still hoping that April's inflation rate might show an improvement.

"We have hopes that we will meet the criteria and that will be clear, more or less, at the end of April," he said.

But the coded comments of the eurozone leaders suggest that a late change of heart is unlikely. Both the President of the European Central Bank (ECB), Jean-Claude Trichet, and the chairman of the Eurogroup of eurozone finance ministers, Jean-Claude Juncker, the Luxembourg prime minister and finance minister, stressed the importance of "sustainability", indicating that one month's numbers would not be enough.

As well as the Commission, the ECB will also publish reports on the two eurozone candidates and is likely to be even less flexible.

Trichet said the criteria should be applied "in a strict and rigorous fashion". "It is the best way to serve Europe and the euro area," he added.

In practice, the governments of the eurozone may be spared the task of refusing Lithuania entry. If the Commission refuses to propose Lithuania's membership, then there will be no need for the national governments to cast their vote.

Gerrit Zalm, the Dutch finance minister, said: "We can't decide to allow someone into the eurozone if it is not proposed by the Commission and the ECB. The ball is with the Commission."

Joaqu�n Almunia, European commissioner for economic and monetary affairs, promised "a strict interpretation of fulfilment of the criteria".

Balcytis said a negative verdict would send a negative message about Europe to the Lithuanian people.

"We took all possible measures in order to comply with the fiscal and monetary rules," he said.

His stance was applauded by those outside the eurozone.

The Estonian Finance Minister Aivar Sõerd said: "We hope Lithuania will be successful."

Estonia itself was obliged last month to abandon its application for eurozone membership from January 2007, rather than face the indignity of being refused membership because inflation is still too high.

Inflation, Sõerd said, would be below the criteria by spring next year.

"The Estonian economy is ready for the euro," he added.

The Slovenian Finance Minister Andrej Bajuk, while hoping to be allowed into the eurozone from next year, said he had considerable sympathy for the other countries left on the outside.

"In the case of Estonia, from the point of view of public policy, there is not more they can do. They have had a currency board for a long, long time, budget surpluses every year. Do you have any formula for them? All they can do is wait."

The Slovak Finance Minister Ivan Miklos, who said his country would meet the criteria for eurozone membership by 2009, criticised a "mechanistic consideration" of the economic data.

The former Communist countries had, as a legacy of the past, much lower prices, he said. While price convergence was necessary, it would inevitably lead to greater inflation. What mattered was whether the countries had a responsible fiscal policy, he said.

But Lithuania will not be allowed such latitude. Karl-Heinz Grasser, the Austrian finance minister, who chaired Ecofin, said: "The most important thing is the stability of the euro."

Report from the meeting of Finance Ministers of the eurozone countries at the Informal Ecofin Council, Vienna, 7-8 April 2006. Ministers considered the application of Lithuania and Slovenia to adopt the European single currency, the euro. Article says that Lithuania's hopes of joining the eurozone as early as January 2007 were effectively dashed when eurozone leaders declared that they were not prepared to be flexible on the terms of entry. The European Commission was expected to report that Slovenia did meet the criteria for euro-membership and should become the 13th country to adopt the currency.

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