Newest EU Members Tread a Hard Path to Single Currency

One of the major goals of the 25 member European Union is one day to have a single currency for the almost 460 million citizens. Currently, 12 countries have sacrificed their marks, francs and drachmas among other currencies, and assumed the euro as its unit of payment, while 13 have retained their currencies.

Britain, Denmark and Sweden have opted out of joining the continental currency. Yet, for the newest members who joined on May 1, 2004, they have obliged themselves to take on the euro. They, like the original 12, must fulfil the strict Maastricht criteria in order to become a country in the Euro zone.

The path to this ultimate goal is filled with obstacles that even financially strong countries like Germany, France and Italy are finding hard to adhere to. The former communist states of Poland, the Czech Republic, Slovakia, Hungary, Estonia, Latvia, Lithuania and Slovenia are experiencing economic booms but the old, rusted infrastructure must be replaced and that is forcing many of the new EU countries to amass large debts.

For Estonia, Lithuania, Latvia and Slovenia, progress is being made at an astonishingly fast rate. They should be ready for the euro by 2007, or 2008 at the latest. Lithuania stands alone in fulfilling the four Maastricht demands of a budget deficit being less than three percent of GDP, total debt not exceeding 60 percent of GDP, and also keeping inflation under control along with low interest rates.

Big new members having problems

While the smaller Baltic States steam towards a new currency, their bigger cousins in central Europe are riding rough waters. Poland, Hungary, the Czech Republic and Slovakia have the largest populations and the largest infrastructures that must be brought up to date. The governments in these four countries are taking on new debts to finance that. The likelihood of joining the Euro zone any time soon is small.

"These countries will probably continue to have their problems with budget deficits. This criterion is the most difficult to adhere to," said Jürgen Matthes from the Cologne-based Institute for the German Economy.

Indeed, sticking to the criteria drawn out at Maastricht is not reason enough to get rid of the national currency for the euro.

Compliance with European policies

The 12 current members in the Euro zone have surrendered their individual monetary policies to the European Central Bank. Their robust economies can tolerate so-called external shocks, say from rapidly rising oil prices.

The new EU members still must maintain some independence on how to deal with unexpected events. Slovakia, Hungary and the Czech Republic need two to five times more oil per GDP unit compared to Western Europe. They can still devalue their currency to a certain extent or lower interest rates in times of need according to Matthes.

The bigger countries are also fighting high unemployment. To take up another burden, such as complying with euro monetary policies, would be too great for Poland or Slovakia. Yet, the eight central and Eastern European countries must one day join the euro zone. It looks as though they will do this at various speeds, and some countries will have larger obstacles to overcome than others.