EUobserver.com

EUOBSERVER / BRUSSELS - Most EU newcomers from central and eastern Europe have recorded much higher than allowed price hikes over the past year, with only Slovakia meeting the price stability criterion to join the euro, the European Commission is to say today (7 May).

"The report finds that Slovakia has achieved a 'high degree of sustainable convergence' and therefore it is considered ready to adopt the euro in 2009," says the draft document, reported earlier by EUobserver.

The convergence report evaluates the economic and fiscal policy development of the EU member states that are not part of the bloc's monetary union. While the UK and Denmark have an exemption from the euro, the remaining countries of the 27-nation EU have a legal obligation to join.

For the central and eastern European countries, the price stability condition has proved to be the key obstacle on their path to the common currency area and the Brussels figures show that there could be a long pause in the eurozone's enlargement after Slovakia's entry.

The problem had emerged before - Estonia had to drop its euro application in 2005 due to high price hikes, while Lithuania became the first country to officially get a red card from the commission in the same year, also due to the inflation rates and their expected trends upwards.

Both countries continue to record price hike levels above the required threshold which is defined by EU rules as not exceeding "by more than 1.5 percentage points that of, at most, the three best-performing Member States in terms of price stability."

According to the 2008 convergence report, "The inflation reference value was calculated to be 3.2 percent in March 2008, with Malta, the Netherlands and Denmark as the three best-performing member states."

Only Slovakia with a past 12-month average inflation rate of 2.2 percent is assessed by the commission as "well below the reference value of 3.2 percent, and it is likely to remain below the reference value in the months ahead, albeit with a narrowing margin."

Poland is closest to the current EU's inflation reference value, with a 3.2 percent average, although on the path upwards, as well as the Czech Republic (on 4.4 %), Romania (5.9 %) and Hungary (5.9 %), with Budapest also featuring as the country with the highest public deficit.

Other countries show even an higher gap between their average price levels and the threshold calculated in March 2008, with Latvia recording the highest inflation in the EU (12.3 %), followed by Estonia (8.3 %), Bulgaria (9.4 %) and Lithuania (7.4 %).

Commenting on most these countries, the commission says the inflation rates are expected to move further up, not only due to external factors such as energy and food prices, but also internal reasons, such as wage increases due to their economic catching up.

Some economists and even politicians have previously argued that the eurozone entry criteria were not made for significantly poorer candidates involved in the process of fast economic growth, such as the states in central and eastern Europe, and should therefore be changed.

However, in a commission's report also due on Wednesday, which evaluates ten years of the euro - set to be celebrated on 1 January 2009, Brussels does not put into question these criteria.

High inflation key obstacle on EU newcomers' path to eurozone