No Safe Haven on the Euro Fringe

Views on BG | May 17, 2012, Thursday // 18:13|  views

By Harvey Morris

International Herald Tribune

How many Danish krone to the Bulgarian lev? Give up? Well, for the benefit of any Danes who might be planning a trip to Bulgaria, it is a little over 3.8 to 1. For now, that is.

Denmark and Bulgaria are among 10 members of the 27-member European Union that do not use the euro. You might be tempted to think the outsiders would be feeling quite smug right now, as they contemplate from afar the anguish of the single currency.

Sometimes it sounds that way, as when David Cameron, the British prime minister, on Thursday lectured euro zone leaders to "make up or break up" in the face of the currency's worst crisis since it went into circulation a decade ago.

The reality, of course, is very different. The European Union states trade principally with each other, so the Poles with their zlotys, the Hungarians with their forints and the British with their pounds are as alarmed as their Continental partners about a potential breakup of the single currency.

Even Mr. Cameron, who has been criticized for trying to tell the euro zone nations how to act, acknowledged on Thursday that, if they failed to solve the crisis, "we are in unchartered territory which carries huge risks for everybody."

"We are living in perilous economic times," he said in a speech to British businessmen, reminding them that Britain still had the advantage of its own central bank. He conceded that euro zone countries might not welcome being given advice by those outside the zone, including Britain. "But this affects us too."

Some of the currencies on the euro fringe are potentially more vulnerable than others. The Danes and the British opted out of joining the single currency. The others are, in principal, waiting to be allowed in.

The Bulgarian lev, for example, is pegged to the value of the euro, so the government in Sofia might have particular reason to be concerned. But as Simeon Djankov, the finance minister, said back in January, with what might turn out to be remarkable prescience:

"The government is not worried about that peg because it is actually to the Deutsche mark and — in the event of any changes to the euro zone — it would continue to follow whatever Germany used."

The currency impact of the euro crisis has been uneven in an increasingly volatile market. Safe haven currencies such as the British pound and the Danish krone have strengthened against the single currency, which is only partly good news since it makes their exports more expensive.

In eastern Europe, by contrast, local currencies, such as Poland's, have slid. The Financial Times this week explained the dilemma there: "As the zloty weakens, the value of Poland's debt denominated in foreign currency rises, putting the government's debt reduction plans into jeopardy."

There is always a bright side of course.

British newspapers have been crowing that tourists heading for Europe with pounds in their pocket would benefit from the best exchange rates in almost four years.

"The euro crisis and the relative strength of the pound against other currencies means that holidaymakers could enjoy a discount of up to 25 percent on their holidays compared to last year," rejoiced the euro-skeptic Daily Mail.

They should enjoy it while they can.

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Tags: euro, lev, Bulgaria, Bulgarian, Simeon Djankov, finance minister

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