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Eastern Europe's economic growth is bolstered by EU membership

The eight former east European communist nations that joined the European Union in 2004 are growing richer, led by Estonia, while Italy and Portugal lost ground.

The EU's newest members, among the poorest in the 25-nation EU all increased GDP per capita in 2005, according to Eurostat, the EU's statistical arm. Per-capita GDP in Estonia, a former Baltic Soviet republic, climbed to 60% of the EU average last year, up from 53% in 2004, the biggest jump in the eight-country group. Growth in the newest members is outpacing expansion in western Europe as cheaper labor and land is attracting investment after they joined the world's biggest free-trade region. The economies of the eastern members grew at an average annual pace of 7.6% in the Q3, compared with 2.7% in the 12 countries sharing the euro. Latvia, with the fastest-growing economy in the EU, is the poorest in the EU and ranks last by per capita GDP. Still, its GDP per capita soared to 48% of the EU average last year, compared with 44% in 2004 and 41% in 2003. Poland and Lithuania averaged at about 50% of the EU average, while the Czech economy reached 74% of the European average, making it the second richest of the eight economies.

Growth in the new EU states has led to accelerating inflation and delays in adopting the euro. The average inflation rate in the euro zone for November was 1.9%, compared with the highest rates in the EU in Hungary and Latvia at 6.4%. Lithuania became the first euro bidder to be rejected to adopt the euro next year. The European Commission said the Baltic nation failed to qualify because inflation is too fast. Countries are changing the euro adoption timetables across the region. Lithuania has set 2010 as a target date for adopting the euro, while the Czech Republic, Estonia, Hungary, Latvia and Poland don't have official target dates.
Slovenia is the only one of the EU's eastern newcomers to adopt the euro next year. The former Yugoslav republic is at the top of the group at 82%, on par with Greece and ahead of Portugal. Five EU's old members including Portugal, Italy, Belgium, Germany and the United Kingdom receded 1 percentage point or more in the year. Portugal slipped back for a second year to 71% of the average, down from 72% in 2005 and 73% in 2004. That makes Portugal poorer than Slovenia, the Czech Republic and Cyprus. (Bloomberg)