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EU grumbles, but Montenegro keeps the euro

The European Union this week scalded aspiring member Montenegro over its use of the euro as its official currency, but the warning was too soft and too late and was not really intended to ruffle feathers.

Podgorica officials calmly made it clear that Montenegro will continue acquiring and using euros without obstacle in the coming years of accession talks with EU. “We see this is less as a warning, than as declaration of a specific position of Montenegro in its process of integrating with EU ... highlighting preconditions for the formal use of the euro,” Finance Minister Igor Luksic said.

Montenegro has been using the euro since its launch in 2002, though it is still far from membership - in only a step toward becoming a member state, it would sign the stabilization and association agreement with EU on Monday. Unlike others from the 13 nations in the European Economic and Monetary Union (EMU), Montenegro has embraced the euro without meeting strict monetary and fiscal criteria or even negotiating. Estranged from Slobodan Milosevic’s Serbia and wanting to sever Belgrade’s monetary influence,

Montenegro introduced the German mark as its official currency in late 1999. Seen as a foothold against Serbia’s strongman in his own backyard, it move was backed by Germany and other Western powers. The tacit approval obviously continued when the time came for the conversion to the euro and Montenegro calmly and unhampered changed all its cash in German marks for euro notes in a commercial arrangement with the Deutsche Bank. “Switching to the German mark was an expression of a political decision in a very specific political moment,” Luksic told Deutsche Presse-Agentur dpa. “Conversion to the euro naturally followed.”

The total money mass in Montenegro, with a population of 650,000, today floats around €2 billion, while the amount of cash is estimated at “a few hundred million,” a modest amount by standards of most European nations. Keeping the euro is a crucial economic question in Montenegro and a “more of a political issue” within the EU, he said. Along with other officials, he sees no possibility in replacing the euro with another currency. “For us it is an anchor of stability, and for EU it was important to send a message to other prospective members, but I don't see it as a great problem or an issue of conflict,” Luksic said. In a vague analogy to the Latin American “dollarization,” other non-EMU countries and territories are also using the joint currency - Andorra, Monaco and Serbia’s UN-administered province Kosovo - in European “euroization.”

People in other countries, particularly those with a history of monetary instability, such as Serbia, have bought billions of cash- euros and keep them in banks and mattresses as a safeguard against the devaluation of their national currencies. But only Montenegro both uses the euro as official currency and aspires to EU membership. As it is, Montenegro is yet to negotiate with the EU the use of the currency which it has, in fact, been using as long as in Germany, the particularly disgruntled France or any other EMU founding member- state. Montenegro is also yet to fulfil the criteria met by countries formally induced into the so-called eurozone. The conditions for EMU include tight control over crucial macroeconomic factors, such as budget deficit, debt and interest rates. Montenegro runs a budget surplus and has a debt that is far lower than EMU requires, but its long-term economic stability remains questionable. (c&