The European Commission released its latest euro area convergence report on June 4, assessing the readiness of EU member states to adopt the common currency, in which it recommended allowing Lithuania to join the euro zone on January 2015.
The issue will be discussed by the European Council at its meeting later this month, with a final decision expected in July. If approved, Lithuania will become the third Baltic state (after Estonia in 2011 and Latvia this year) and the seventh of the 10 countries that joined the EU in 2004 to adopt the euro.
“Lithuania’s readiness to adopt the euro reflects its long-standing support for prudent fiscal policies and economic reforms,” European commissioner for economic affairs and the euro, Olli Rehn, said.
“That reform momentum, driven in part by Lithuania’s EU accession ten years ago, has led to a striking increase in Lithuanians’ prosperity: the country’s per capita gross domestic product has risen from just 35 per cent of the EU28 average in 1995 to a projected 78 per cent in 2015.”
Seven other EU member states, which are required to join the euro zone under the terms of their respective accession treaties, did not meet the necessary requirements and will be reassessed in two years’ time.
Bulgaria is one of those countries and it has no official target for joining the common European currency. The last serious push from Sofia came in 2009 and 2010, early in the Boiko Borissov administration, but the deepening economic crisis in the euro area – which required bailouts in Greece, Ireland and Portugal (as well as Romania and Hungary outside the euro zone) – cooled any enthusiasm about the issue.
Bulgaria’s low public debt, high capital adequacy ratios in the banking sector and tight austerity policies would have made it an unlikely candidate for a bailout, but the political support from countries already in the euro zone was simply not there.
Bulgaria currently meets the three macroeconomic criteria to join the euro zone – the price stability (inflation), public finances and long-term interest rates convergence. Despite that, Bulgaria’s economy “continues to experience macroeconomic imbalances, which require monitoring and policy action”, while on business environment the country “performs worse than most euro area member states,” the convergence report section on Bulgaria said.
The other two criteria, on which Bulgaria falls short, are political in nature – legislation on its central bank is not fully compatible with the Trety on the Functioning of the European Union (the Treaty of Rome) and the country is not part of the European exchange rate mechanism ERM II. (There are no formal requirements to join ERM II and it would be a formality in Bulgaria’s case anyway, since the country’s currency, the lev, is pegged to the euro already.)
(Photo: Carlos Paes/sxc.hu)