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Euro-bondage

22 June 2011

4:50 PM

22 June 2011

4:50 PM

At a time when the Euro is looking so weak, it is a wonder that so many countries are
still queuing up to join. Estonia has recently joined, while Hungary and Bulgaria are keen as mustard to join as well. Make no mistake, these countries want to join. They go to lengths to stay for
two years in the European Exchange Rate Mechanism, while keeping inflation inline with the EU average. At a meeting this morning, the Hungarian foreign minister capped off his country¹s EU
Presidency by declaring that Hungary is still focused on joining.

But, even if these countries did not want to join the Euro, or felt perhaps that the Greek crisis was a reason to postpone membership, they would have no choice. For despite a widespread belief to
the contrary among their citizens, all EU member-states, except for Denmark, Britain and Sweden, are obliged to adopt the euro as their sole currency when they meet the criteria. Agreeing to join
the Euro was an integral part of European Union membership. They could not have one without the other.


From the point of view of the economic fundamentals emphasised by optimal currency area theory, which has formed the basis for the Euro, it is in the interest of Central European member-states to
join the Eurozone as soon as possible. They are all too small, too open and too vulnerable to speculative attacks against their national currencies to be optimal currency areas. For the smallest
ones among them, it is indeed doubtful whether a national currency is a viable option in the medium to long run. Many of the countries, like Hungary, run current account surpluses and
export like mad.

But if I were a Hungarian or a Bulgarian I would be sceptical of the economic rationale for the Euro, given the state of the currency today. And I might find it curious that my government is
legally committed to do something, which is not necessarily in the national or even European interest.


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