Tuesday

26th Mar 2019

Small EU states rush to join single currency

  • Cyprus: in for some big changes in 2008 (Photo: European Commission)

Cyprus has applied to join the eurozone on 1 January 2008, as part of a trend that is seeing the EU's smallest new members rush to get into the single currency while bigger economies such as Poland and Romania pull further away from the euro-horizon.

Nicosia's formal letter of application arrived on the European Commission's desk on Tuesday (13 February), starting a process that should see EU states give the green light at the EU summit in June and the Cypriot pound replaced by euro notes and coins by February next year.

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The move follows Slovenia's euro-entry last month, with commission officials also expecting Malta to apply in time for the June summit and with Lithuania, Latvia and Estonia planning to join between 2009 and 2010. Lithuania had applied to join this year, but missed the criteria by a whisker.

Added together the total populations of these six smaller, eurozone-friendly states amount to 10 million people and the total size of their economies comes to €134 billion. The eurozone's biggest member, Germany, alone has 82 million people and is worth €2.2 trillion.

A number of other tiny non-EU states have also already adopted the euro as their official currencies for a mixture of reasons: Monaco, San Marino, the Vatican City, Andorra, Montenegro as well as the UN-run province of Kosovo all use the EU currency, even though Liechtenstein prefers the Swiss franc.

By contrast, analysts predict that inflationary pressure is likely to see Slovakia miss its formal 2009 target. Bulgaria could join as late as 2012. High public deficits in the Czech republic and Hungary mean that 2012 would be optimistic and Romania is looking at 2014.

Meanwhile, Poland - the biggest of the new EU states - has not even set a target date, with the country's eurosceptic government instead planning to hold a referendum on euro entry in 2010 in a scheme that could clash with its EU accession treaty promise to join the eurozone.

"Some of these are simply lacking the fiscal conditions but others are manoeuvring to widen the public deficit as much as they can while they can still get away with it," HSBC analyst Juliet Sampson said. "In Poland, it's much more political."

"The bigger eastern European countries are not so keen," Credit-Suisse expert Dennis Brandes said. "You could say the Cyprus move is a vote of confidence for the euro. But I'm not sure that it will affect the bigger picture."

The euro has taken a beating in public opinion terms in the past year with former Italian leader Silvio Berlusconi last July saying the euro had "screwed" his economy and with an FT-Harris survey last month showing that most people in Germany, Italy, France and Spain preferred their old currencies.

Under EU law, once a country joins the euro there is no legal mechanism for getting out of the currency again. "Some people in Italy are discussing this. But legally speaking, it's for eternity and any kind of break up would have a catastrophic effect on the currency," Credit-Suisse's Mr Brandes said.

Cypriots unsure

In Cyprus itself a recent Eurobarometer showed that 55 percent of people have a negative or very negative opinion about the euro, while just 33 percent support the switch to the common currency. The old Cyprus pound is also unloved however, as it is associated with a period of UK colonial rule that ended in 1960.

"My personal feeling has always been that people in Cyprus are looking forward to changing to the euro," a Cypriot diplomat told EUobserver. "Perhaps there is some concern about the risk of prices being rounded up."

He added that the advent of the euro could even improve chances for the reunification of the island, with a 2004 referendum on a UN reunification plan rejected by the Greek Cypriots because - among other reasons - they did not like the idea of having two currencies (the pound and the Turkish lira) and two central banks.

"Now nobody [in the Turkish Cypriot north] would say anything against the euro, so this might create a better climate. This aspect of the solution won't be disputed anymore," the diplomat explained.

Bulgaria to take first steps towards euro

Bulgaria joining the single currency "will not result in any additional risk for the euro system", its finance minister said. The country's lev currency has been pegged to the euro since 1997, making it already highly dependent on ECB policy.

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