EU refuses to soften inflation rules for Euro bidders
Bending the rules is „not acceptable with a view to the credibility and stability of the euro,” German Finance Minister Peer Steinbrueck said at a press conference after an EU meeting in Luxembourg yesterday. Pressure has been mounting on EU leaders to loosen the rules since June, when they rejected Lithuania's bid to join the euro until the government gets price increases under control. Slovenia, with slower growth and lower inflation than Lithuania, won acceptance to become the first eastern European country to join the single currency. The EU's „no” to Lithuania marks the first time the EU has turned down a euro aspirant, setting the tone for larger countries such as Hungary and Poland that are struggling to pass the economic tests to switch to the euro in coming years. Six eastern countries, Poland, the Czech Republic, Latvia, Estonia, Lithuania and Slovakia, protested yesterday that a rigorous reading of the inflation rules will keep them out of the euro and delay the economic unification of Europe. „No one wants to change the treaty or the protocol as it is now,” Finnish Finance Minister Eero Heinaeluoma said. „We cannot change the rules at this time.”
The fight over euro-entry rules underscores Europe's east-west economic divide. Eastern European nations are expanding at a faster pace than western Europe, heightening inflation pressures as the ex-communist countries catch up with the West's standard of living. European Central Bank President Jean-Claude Trichet took part in the meeting to emphasize that the inflation-conscious ECB will brook no loosening of the criteria, which were laid down in the Maastricht Treaty of 1993. „Any change to the rules would be very damaging to credibility,” Trichet told the ministers, according to an EU spokesman who briefed reporters. The EU says Lithuania is not ready to adopt the euro because inflation is likely to accelerate in the months ahead. Inflation in Lithuania will be 3.5% this year and 3.3% in 2007, according to European Commission forecasts. Slovenia's inflation is expected to be 2.4% this year and 2.5% in 2007.
According to the Maastricht Treaty, euro candidates need to keep inflation within 1.5 percentage points of the 12-month average of the three EU nations with the lowest inflation. They must also hit targets for budget deficits, debt, interest rates and currency stability. The rules can only be changed by a unanimous vote of EU leaders. „The euro-zone members don't feel there's any need to make any change to the inflation criteria for future enlargement of the euro zone,” Luxembourg Prime and Finance Minister Jean-Claude Juncker said. The Brussels-based commission will issue its next report cards on eastern euro bidders in December. (Bloomberg)
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