In the on-going debate about the future of the Euro it is often forgotten that membership in the Euro-zone is mandatory for all EU member States provided they fulfil the Maastricht criteria – budget deficit below 3 per cent and public debt below 60 per cent of GDP – and have achieved a satisfactory level of economic & monetary convergence ( small current account imbalances and interest rates in line with Euro zone countries).
Only Denmark and UK enjoy permanent derogations. It is therefore only a matter of time before all other EU countries will have joined the “Euro- club”. Some like Poland have already expressed their intention to join, though without any hurry.
A look at their performance shows that most of them have been eligible as of 2010.
Hungary though missed the public debt ceiling (81 per cent) and Bulgaria suffers from an excessive and persistent current account deficit (11 per cent), and both countries are crushed by excessive unemployment (11 per cent of GDP).
All EU countries are under Commission surveillance for the respect of the Maastricht criteria and, after ratification, the Treaty on Stability, Coordination and Governance (TSCG).
In view of restoring confidence in the Euro the EU should send clear signals to capital markets that all non-Euro member states, except UK and Denmark, will progressively join until 2020.
In order to achieve this, the EU Commission should map out preparatory strategies for every country. These should focus on keeping debt levels below the 60 per cent ceiling, containing inflation below 2 per cent, implementing structural adjustments, including sound public finance. and last not least, fixing a Euro-exchange rate that will not lead to persistent current account deficits.
Sweden that has faced domestic opposition to the introduction of the Euro should be included in this exercise. With Sweden set to join, Denmark might have second thoughts on staying outside. In the end, only UK might continue to stick to a separate currency.
Eight years should suffice to prepare for Euro membership if the EU Commission and the ECB offer their full assistance.
What matters in the near future is to send messages of confidence to the markets and a wake-up call to the future Euro-zone members to thoroughly prepare for what will be a major change of their economic and monetary landscape.Author : Eberhard Rhein