1st Aug 2021

ECB rejects eastern fast-track to eurozone

  • Adopting the euro remains a distant option for troubled eastern European member states (Photo: Wikipedia)

The European Central Bank (ECB) on Monday dismissed proposals made by the International Monetary Fund for eastern European member states to adopt the euro even without full membership of the eurozone.

"This [IMF proposal] is not realistic. The membership for European monetary union has very clear rules and these rules have to be followed. From an economic point of view, it would not be a good signal [for] the confidence . . . towards the euro," Ewald Nowotny, ECB governing council member, told Reuters.

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The bank was responding to the publication in the Financial Times of a confidential report drafted by the IMF last month as part of a regional anti-crisis strategy for the eastern EU countries.

It suggested that the EU should relax euro entry rules for countries like Hungary and Poland so that these countries can join as quasi-members without needing to hold a board seat in the ECB.

Eurozone accession is guarded very strictly by the European Commission and the ECB. Countries wishing to adopt the single currency need to keep a low inflation rate, a public deficit of below three percent of gross domestic product and stable exchange rates – all criteria which seem particularly hard to meet amid the current financial and economic crisis.

Countries also have to spend two years in a pre-accession phase, called the exchange rate mechanism II.

Jean-Claude Juncker, prime minister of Luxembourg and chairman of the Eurogroup of finance ministers, has consistently stressed that countries wishing to adopt the euro may not take short cuts.

The commission on Monday played down the IMF report, saying that it was drafted before the bloc's decision to double the fund for eastern EU members to €50 billion and to bolster IMF lending capacity.

Meanwhile, in New York, US billionaire and currency speculator George Soros praised the euro and suggested it was the only solution for troubled eastern European countries.

Mr Soros told Reuters Financial Television the euro has been "a tremendous advantage" to countries that use it and said there was "no question of a weaker country dropping out."

While the IMF was helping to stabilize struggling eastern Europe, Soros said the Baltic states still face "serious problems" even as Germany, the euro zone's biggest economy, is becoming more open to offering help.

Mr Soros also backed the Chinese idea of replacing the dollar as a world reserve currency, possibly with the IMF's special drawing rights.

"In the long run, having an international accounting unit other than the dollar may be to our advantage," he said.

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