7 CEE Nations, Bulgaria Included, Cast Doubt on Euro Adoption over Closer Fiscal Union

Finance | September 12, 2011, Monday // 16:32|  views

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Bulgaria and six other Eastern European EU member states have warned they share major concerns over their future adoption over the euro because of the sovereign debt crises and the proposed closer fiscal union of the Euro Area.

The East European nations outside the Euro Area – Bulgaria, the Czech Republic, Hungary, Latvia, Lithuania, Poland, and Romania – have "a number of concerns" over how the debt crisis and the currency bloc's response to it could affect their Euro Area membership prospects, according to Poland, the current holder of the rotating European Union presidency.

"We wanted to discuss current developments and shared a number of concerns," said Mikolaj Dowgielewicz, European Affairs Minister for Poland, said in Brussels Monday after the meeting of the EU 27 Foreign and EU Affairs Ministers within the General Affairs Council, as cited by Bloomberg.

The representatives of Bulgaria, the Czech Republic, Hungary, Latvia, Lithuania, Poland and Romania, which committed themselves to adopt the common currency when they joined the EU in 2004 and 2007, met on the sidelines of the bigger EU meeting.

The debate in the 17- nation Euro Area over how to strengthen fiscal rules to help tackle the sovereign-debt crisis should involve central and east European nations, Dowgielewicz said.

"I think that what matters is that those countries take an active part in the discussion," he told reporters in Brussels. "You can't restrict the debate on the future of the euro only to euro-zone countries."

International media have cited unnamed "diplomatic sources" as saying that the Eastern European states that are not a part of the euro zone yet could resort to holding referendums on their adoption to the common currency if the Euro Area moves towards a closer fiscal union – such as the ideas for a euro zone government and new budget rules put forth by French President Nicolas Sarkozy and German Chancellor Angela Merkel in August 2011.

Sarkozy and Merkel's proposals came after in early 2011 France and Germany came up with the so called Euro-Plus Pact, also initially called the Competitiveness Pact, or later the Pact for the Euro, a plan in which the member states of the European Union make concrete commitments to a list of political reforms which are intended to improve the fiscal strength and competitiveness of each country.

The plan has been advocated by the French and German governments for more widespread adoption by other Eurozone countries as a more stringent successor to the Stability and Growth Pact, which has not been implemented consistently.

On 25 March 2011 the proposal for economic measures and cooperation was adopted by the European Council and included the euro zone member states as well as Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania. The EU members not participating currently are the UK, Sweden, and two of the Central and Eastern European members in question – Hungary and the Czech Republic.

The Euro-Plus-Pact has been controversial not only because of the closed way in which it was developed but also for the goals that it postulates. It was adopted in March 2011 and uses the EU's Open Method of Coordination.

In addition to warning that a changing rules for euro zone cooperation could lead to hold referendums, the Eastern European ministers also insist that EU member states that do not currently use the euro be allowed to participate in the talks for reforms of the way the Euro Area functions.

At the same time, while expressing concerns over the debt crises of Greece, Ireland, and Portugal that shook the euro zone, and its future reforms, the representatives of Bulgaria, the Czech Republic, Hungary, Latvia, Lithuania, Poland and Romania have still expressed a desire to join a union with a close economic and political convergence rather than just a "simple" currency union.

Bulgaria has repeatedly expressed one major concern with both the Euro-Plus-Pact and the potential reforms for acloser fiscal union of the euro zone members in the future with respect to taxation policy.

The Bulgarian government has restated Bulgaria's opposition to the Franco-German idea for a harmonization of tax policies in the EU, stressing that Bulgaria, which has the lowest taxes in the EU, will keep in mind the tax harmonization ideas when it decides on its future accession to the euro zone, because its current taxation policies make it relatively competitive when it comes to attracting FDI.

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Tags: CEE, Eastern Europe, Central and Eastern Europe, EU, euro zone, Eurozone, Euro Area, Euro Group, euro adoption, Poland, Romania, Hungary, Czech Republic, Latvia, Lithuania, euro-plus-pact, euro, Euro Plus Pact, EU 27


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