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IMF says EU states in E.Europe should adopt euro - FT

  Struggling European Union countries in central and eastern Europe should switch to the euro even without full euro zone membership, according to a confidential report quoted by the Financial Times on Monday.

The 16-member euro zone could relax its entry rules so the states could join as quasi-members, without European Central Bank seats, the paper cited the report as saying.

“For countries in the EU, euroization offers the largest benefits in terms of resolving the foreign currency debt overhang (accumulation), removing uncertainty and restoring confidence,” said the report, written around a month ago. “Without euroization, addressing the foreign debt currency overhang would require massive domestic retrenchment in some countries, against growing political resistance.”

The paper said the report had been prepared to support an ultimately unsuccessful campaign by the IMF, the World Bank and the European Bank for Reconstruction and Development to support a region-wide anti-crisis strategy for the European Union and eastern Europe.

The report, covering eastern Europe, former communist states and Turkey, expects a 2.5% fall in gross domestic product for the “emerging Europe” region this year, compared to a 4.25% growth forecast last autumn. It said the region would have to roll over $413 billion of maturing external debt in 2009 and finance $84 billion in current account deficits.

G20 countries agreed to boost IMF reserves to $750 million at their summit in London last week to help emerging markets including those in eastern Europe weather the global financial crisis.

In the last six months the IMF has pledged over $60 billion in loans to the region, with Hungary, Latvia, Romania, Serbia and Ukraine among those with programs. (Reuters)