By James M. Gomez
Dec. 11 (Bloomberg) -- Sebastian Socaciu, a 29-year-old Romanian, decided his country should adopt the euro when he had to choose between buying a new coat or paying the mortgage.
With his house payments in euros and his salary in lei, the Romanian currency’s slump forced Socaciu to forego the coat he needs to brave the frigid winter building cell-phone towers.
“I’m totally for euro adoption; it would really spare me,” Socaciu said over a roast-pork lunch in Bucharest. “I may even have to look for a second job.”
Eastern Europeans are pushing to join the 15-nation euro club sooner than planned to shield the former communist nations from the global financial crisis. Citizens, politicians and companies, including Volkswagen AG’s Skoda Auto, are trying to persuade a skeptical European Central Bank to consider them, even as falling currencies and reeling economies make it unlikely they will qualify in the next few years.
Before the economic turmoil, record advances in emerging- market currencies and growth that outpaced the euro nations left easterners content to do without the common currency. The Czech government dropped its target date of 2010 two years ago, citing the need to foster stronger growth to boost living standards. Then-Polish Premier Jaroslaw Kaczynski last year called adoption a “far-off” prospect.
Now, Polish Prime Minister Donald Tusk is pushing for 2012 as the country’s first-ever target date. In Hungary, Finance Minister Janos Veres said this month that the government may peg the forint to the euro in the exchange-rate-mechanism, the two- year pre-adoption test of currency stability, as early as 2010.
First Timetable
That marks the first definitive timetable after Hungary was forced to abandon its euro adoption date of 2010 two years ago because of a burgeoning budget deficit.
“The radically changed global environment has increased the attractiveness of joining the stronger common currency,” said Marek Dabrowski, president of the Warsaw-based Center for Social and Economic Research. He is also a former Polish central banker and deputy finance minister. “It’s clear the euro has become important again in a time of distress.”
The polish zloty has dropped 23 percent against the euro from a record high set in July, and is headed for its first annual retreat since 2003. The Hungarian forint fell to a record low of 286.55 per euro on Oct. 23, three months after reaching an all-time high of 227.61. The Romanian leu has lost 8 percent this year.
Latvian central bank Governor Ilmars Rimsevics said on Nov. 4 that the Baltic nation may adopt the euro by 2011, the earliest target date a policy maker has suggested for Latvia since it was turned down to join the euro zone in 2007.
Czech Support Grows
Euro optimism in the Czech Republic is also growing, over the opposition of President Vaclav Klaus and Prime Minister Mirek Topolanek. Opposition leader Jiri Paroubek said in a Dec. 4 interview that he would support the government in parliament in exchange for a new adoption date. On Nov. 25, Holger Kintscher, a management board member for Skoda Auto, said the Czech Republic should “wake up before it’s too late.”
Slovenia, a former Yugoslav republic, was the first of the eastern European EU members to join, while Slovakia, once part of the defunct Czechoslovakia, will give up the koruna on Jan. 1. They will most likely be the last for some years, said Juraj Kotian, an economist at Vienna-based Erste Bank AG.
Hungarian Consensus
The wannabes say that would be a mistake.
“There’s 100 percent agreement that joining the euro is a must, and the sooner the better,” said Hungarian opposition leader Viktor Orban on Dec. 8, in a rare consensus with the government. In May, his party’s deputy chairman, Mihaly Varga, had said 2014 was a “much more realistic date.”
Andrzej Augustynowicz, a 51-year-old taxi driver in Warsaw, said he became a euro fan after hearing the arguments of Tusk and other government officials. Before the crisis he saw little benefit, since he doesn’t travel and owns no business.
“It makes sense that the euro should be the final step of our integration,” he said as he steered his 25-year-old black Mercedes Benz through traffic in the financial district. “I want us to end what we started.”
Euro candidates must hold inflation down, keep budget gaps to within 3 percent of gross domestic product and cap national debt at 60 percent of GDP. They also need to show before adoption that they will stay within those monetary, fiscal and economic guidelines after the switch.
Europe’s oncoming recession will slow inflation, though it is unclear whether it will fall enough for nations to qualify for euro adoption any time soon, said Neil Shearing, an emerging- market economist at Capital Economics Ltd. in London.
Inflation Recedes
The Organization for Economic Cooperation and Development on Nov. 25 forecast that the Polish inflation rate will drop to 3.2 percent next year from 4.2 percent this year. Hungary’s inflation, expected at 6.4 percent this year, should fall to 3.6 percent in 2009 while the Czech rate will be 2 percent, compared with an expected 6.6 percent this year, it said.
“Emerging Europe will always struggle with the inflation target,” said Shearing, who favors adoption as soon as possible. The bigger challenge is for governments to resist spending more to help cushion the financial crisis, he said. “There may just be reform fatigue.”
The Bulgarian Confederation of Employers and Industrialists proposed on Nov. 27 unilaterally adopting the euro, bypassing the approval of the European Commission and ECB.
“We should have adopted the euro years ago,” agreed Andreas Ocskay, a 30-year-old Hungarian human resources director for an export company, as he dug into a plate of spaghetti in a Budapest cafeteria. “It would really help against currency volatility. It just makes sense.”
To contact the reporter on this story: James M. Gomez in Prague at jagomez@bloomberg.net
Posts
No comments:
Post a Comment