Tuesday, March 10, 2009

Calls to relax eurozone rules rebuffed

From the FT this morning:

Calls to relax eurozone rules rebuffed
By Tony Barber in Brussels

Published: March 10 2009 08:48 | Last updated: March 10 2009 12:24

European Union countries hoping for milder terms on which to adopt the euro faced a rebuff on Tuesday from eurozone finance ministers, who said the credibility of Europe’s monetary union required sticking to EU rules.

“Given the current volatility of the situation, this would not be the right time to launch a debate on this,” said Jean-Claude Juncker, Luxembourg’s prime minister and head of the 16-nation eurozone finance ministers’ group.

The ministers’ decision is likely to be interpreted in some of the EU’s central and eastern European states, especially Hungary, as a sign that richer western European countries are failing to meet the challenge of helping their new democratic neighbours in the most difficult hour of their post-communist history.

Hungary last month raised the idea of shortening the two-year spell that a eurozone candidate country is obliged to spend in the EU’s exchange rate mechanism, known as ERM-2.

The proposal has won support from Thomas Mirow, president of the European Bank for Reconstruction and Development, who said last week the waiting time should be reduced on condition that a candidate country met all the EU’s rules on budgetary discipline.

The ERM-2’s purpose is to establish that a country’s currency is stable enough to justify eurozone membership.

But Hungary contends that the world financial crisis is so serious that some economically battered central and eastern European states need the protection offered by the eurozone sooner rather than later.

At an informal EU summit on March 1, Angela Merkel, Germany’s chancellor, suggested that she was open to reconsidering the ERM-2 process, but not to relaxing other tests for eurozone candidate countries on budget deficits, inflation, interest rates and public debt.

Mr Juncker said on Monday night that the eurozone finance ministers had agreed that careful adherence to the rules was essential, because the eurozone, unlike the US and other single-currency areas, lacked a central government and fiscal authority.

“We have a monetary union which doesn’t have a central state. It must be based on a set of rules. They are made up of the [EU’s governing] treaty and the stability and growth pact, and there is no question of changing the criteria or changing the amount of time that an aspirant must stay in the ERM-2, to bring it down from two years to one year,” Mr Juncker said.

“The credibility of monetary union is at stake,” he declared.

Mr Juncker was speaking after discussions during which EU policymakers confirmed that Romania was seeking a EU financial aid package similar to those arranged late last year for Hungary and Latvia, its fellow former communist member-states.

The EU recently doubled to €25bn the resources of a fund that helps non-eurozone EU countries address their balance of payments problems. Hungary and Latvia have both drawn on the fund.

But Mr Juncker made clear that eurozone finance ministers had no appetite for a much bigger, across-the-board financial aid package for central and eastern Europe, as proposed by Hungary.

“We refuse to accept that they represent one bloc. That has no longer applied since the fall of the Berlin Wall,” he said.

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