Date: 4 May 2006
 
Speakers: Andres Sutt, Deputy Governor, Bank of Estonia
Rolandas Krisciunas, Undersecretary, Ministry of Finance of Lithuania
Žiga Lavric, State Secretary at the Ministry of Finance of Slovenia
George PARKER, Brussels Bureau Chief, Financial Times
Benjamin Angel, Cabinet of Commissioner Almunia, European Commission
Chair: Daniel Gros, Director, CEPS
 
The CEPS conference provided participants with an opportunity to exchange different points of view on the possible future extension of the Eurozone to include countries that joined the European Union two years ago. The representatives of three Eastern European countries (Estonia, Lithuania and Slovenia) which are expected to join EMU in the near future, were all on the panel of speakers. All of them underlined that the adoption of the common currency is the key priority for their countries.
 
In particular, Andres Sutt, Deputy Governor from the Bank of Estonia, stressed the strong fundamentals that should be put in place prior to their adoption of the euro as an important element to ensure that they gain the most out of their membership of the eurozone. Given that the central bank of a country that has joined the eurozone is no longer able to determine its interest rates, nor to alter the exchange rates, a strong fiscal position is crucial in order to ensure that asymmetric shocks do not hamper the normal functioning of the economy. He called also for a clear set of rules and an appropriate application of the Maastricht criteria in assessing the convergence position of eurozone candidates.
 
Rolandas Krisciunas, Undersecretary at the Ministry of Finance of Lithuania, expressed the conviction that staying outside the eurozone makes no sense for countries that joined the European Union on 1 May 2004. He also underlined that Lithuania does not expect any exceptions from the rules to be made but does expect an objective revision of the state of its convergence. In the view of Rolandas Krisciunas, the final decision as to whether to accept Lithuania as a member of Economic Monetary Union should be based on economic considerations within the legal framework. In that context, he raised the question as to whether the three best performing member states, as defined by the Treaty, are representative or not. It has been noticed that often at least one of these three best performing countries stays out of the eurozone. Another question was related to the reasons why low inflation rates are taken as a reference value for the Maastricht criterion. It has been observed that low inflation can be due to some undesirable factors such as appreciation of the national exchange rate. In the conclusion of his speech, Rolandas Krisciunas confirmed that Lithuania has met the convergence criteria. He recognised, however, that what matters for the final assessment are the European Commission’s reports plus the European Central Bank and EC Council decisions.
 
Žiga Lavric, State Secretary at the Ministry of Finance of Slovenia, pointed out that there is a very high level of public support in Slovenia in favour of adopting the euro. About 60% of the population is in favour of the common currency. However, around 50% of the population of Slovenia is aware of the risks of prices going up as a result of joining the eurozone. In order to prevent inflation, it has been noted that many different initiatives have been applied, such as the law on double pricing, in force from 1 March 2006. The representative from Slovenia stressed that there is widespread public understanding of the need to counter undesirable price dynamics. An example of this can be seen in the very prudent wage policy of the trade unions. Žiga Lavric believes that this overall social understanding of the necessity to maintain a relatively low inflation rate is connected with the perception of positive spillover effects due to the adoption of the euro. The most important benefits are to be seen in greater competitiveness, transparency, low interest rates, economic stability and higher levels of growth.
 
George Parker, the Brussels Bureau Chief of the Financial Times, took an article by Wilhelm Buiter, published on the same day in the FT, as the reference point for his speech. Several important issues were stressed in the article. Among them is the question, raised by the representative from Lithuania, of pinpointing the three best performing countries. According to the author, the inflation criterion should be defined with reference to the 12 eurozone members and not to all 25 EU members. George Parker noted, as did Wilhelm Buiter, that the Maastricht criteria have been violated in the past and there is no reason to respect them literally when it comes to the decision regarding Lithuania in particular. According to George Parker, the real reason why the European Commission wants to apply the rules of the Treaty very strictly now lies in the future accession to the eurozone by larger countries such as the Czech Republic, Hungary and Poland. The Commission wants to show that the rules are to be applied no matter how big the country is and how serious its problems are.
 
The last speaker, Benjamin Angel, who represented the Cabinet of Commissioner Almunia, started by setting out the Commission’s approach to the issue. Its main characteristic is that it is a neutral line. As a consequence, the Commission has never either pushed or discouraged any country from proceeding on the road to joining the eurozone. In the Commission’s opinion, the candidate countries should not rush to join the eurozone but join when they are ready to and are in line with all the requirements set out in the Treaty. He also said that the Commission has never violated the Treaty, even if when it came to deciding whether to accept the membership of highly indebted countries. In that sense, the Commission’s position will be tough with respect to all potential future members of the eurozone - if even one criterion is not respected, it can constitute the basis to stop the joining process. Moreover, the criteria are cumulative and cannot be considered separately. Finally, as Benjamin Angel observed, none of the candidates ever proposed any change to the criteria even when there was an opportunity to do so. Consequently, the Commission, as the guardian of the Treaty, will strictly apply what has been agreed from the very beginning because it is only in this way that it will be possible to maintain its credibility.
 
See the slides of Undersecretary Krisciunas' Presentation