THE woes and failings of euro zone member Greece have sparked irritation among the EU’s ex-communist states, amid jitters that the entry rules for the single currency club could be beefed up.
Lithuanian Prime Minister Andrius Kubilius on Friday underscored what his country sees as unequal treatment of euro zone insiders and would-be entrants, locked in biting austerity drives as they try to meet the entry criteria in the face of an economic crisis. “As long as a country is not a member of the single currency, the Maastricht criteria are applied very strictly, but once you are in, you can do almost what you want,” he said.
Ex-Soviet republic Lithuania joined the European Union in 2004. It had aimed to adopt the euro in 2007 but failed by a hair’s breadth to meet inflation-control criteria laid out in the EU’s Maastricht Treaty on economic and monetary union. Greece, meanwhile, was admitted in 2001 as a founding member of the euro zone after presenting what turned out later to be bogus data. It has since run up a public deficit and a debt far in excess of euro zone limits.
Lithuania’s litas is pegged to the euro, just like the currencies of its Baltic neighbors Latvia and Estonia, which also won independence from Moscow in 1991 and joined the EU six years ago. The trio, with a total population of 6.8 million, are relative minnows in the EU.
Just three years ago, they were still considered economic “tigers” thanks to robust growth driven by vibrant domestic demand. But their overheated economies slipped into crisis in 2008, and last year posted double-digit contractions. Latvia is relying on a 7.5-billion-euro ($10.3-billion) bailout led by the International Monetary Fund and the EU. Lithuania and Estonia have survived without a rescue package.
Under the Maastricht Treaty, countries must meet certain conditions in order to adopt the euro. They mainly concern limits on public finances, debt, inflation and exchange rate stability. To hold their euro zone course — they argue the single currency would be a future safe haven — the Baltic states have pared public spending, including wages, to the bone. Companies have followed suit.
Estonian authorities say that as a result of their efforts, their country has met the criteria and that a 2011 euro zone entry is on the cards. Sixteen of the EU’s 27 members now use the euro. Estonia would be the third ex-communist state to switch, after Slovenia and Slovakia. Lithuania and Latvia, meanwhile, are eyeing a 2014 entry.
Analysts, however, say that despite the best efforts of the Baltic states and other ex-communist states knocking on the euro zone’s door, the Greek crisis could make their path more difficult. “I think it’s quite unlikely that the euro zone will accept any new members on board in the near-term or even in the medium-term,” said Par Magnusson of Danske Bank, saying the currency club has enough problems not only with Greece but also with other members such as Spain, Italy and Portugal. He pointed to would-be member Hungary, another 2004 ex-communist EU entrant, with its swollen debt echoing that of Greece.
Hungary has said it aims to adopt the euro in four years. It also won an international bailout in 2008, worth 20 billion euros ($27.5 billion).
Analyst Maria Valachyova at Slovenska Sporitelna in Slovakia warned against viewing ex-communist states as a bloc. “Apart from Hungary, no other countries in the region have debts comparable to those in Greece,” she said. “No such crisis is likely to happen in the Central and Eastern European region.”
For PriceWaterhouseCoopers economist Witold Orlowski in Poland, the region has lessons to offer.
“Right now it’s clear that several countries of central Europe are much stronger in financial terms than some members of the euro zone,” he said, spotlighting Poland and the Czech Republic. Nonetheless, he said, euro zone applicants are likely to be “scrutinized with much more prudence than before”.
“Of course I’m not talking about the doctored data of Greece but rather analysis of a country’s long-term stability,” he said. “If Greece had undergone that kind of long-term scrutiny, it would never have been let into the euro zone”.
