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New Euro Countries ... in 2012 maybe

Started by chrisild, October 26, 2009, 04:56:05 PM

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This may come as a surprise for some, but in January 2010 there won't be any "new euro countries".

Between early 2002 and late 2006 the number of EU member states that had the euro was the same, for five years. Then, however, Slovenia joined (1-Jan-2007), with Cyprus and Malta to follow (1-Jan-2008), and finally Slovakia (1-Jan-2009). So some collectors have gotten used to the idea that every year there is a new set from a new country. ;) Not any more. The next countries that may join the currency union are Estonia (2012 maybe) and Bulgaria (2013 maybe). Estonia participates in the Exchange Rate Mechanism (ERM-II), Bulgaria does not at this stage.

This month's issue of Münzen Magazin has an article about the status of those countries that are in the European Union but do not have the euro.

Of course this is a brief overview only, not an in-depth economic analysis, and certainly not an official position. Also, who knows whether the convergence criteria continue to be the same, now that hardly any existing euro country meets the stability criteria ...



Here is an "non-numismatist" article about the issue. :) Says basically the same thing though. From today's Irish Times (but it's a Reuters article that you can find elsewhere too):

"The European Union's eastern members need to adjust their timetables for joining the euro currency to avoid the risk of creating new bubbles again with overly ambitious plans (...). European Central Bank executive board member Gertrude Tumpel-Gugerell told a conference in Vienna that credible strategies for adopting the euro were essential and that some countries may need a correction due the financial crisis. (...) A Reuters poll last week showed analysts expect Estonia to be the next country from Central Europe to join the euro zone in 2012, a year sooner than predicted in August. Further entrants would not come before 2014, the poll showed."
(Bold portions = my emphasis)



This is again a political game. In this case, it pits the ECB and Commission technocrats against the Council "diplomats". The argument of the "diplomats" is more or less: the sooner countries can adopt the EU the better, because that will give them "free" economic growth, which will engender support for the EU, so they'll become loyal members.

The argument of the technocrats is: as long as a country has an undervalued currency, adoption of the euro will lead to an economic bubble that must be deflated (see Spain and Ireland). Let's take the artificial exchange rate out by requiring that new entrants fulfill all Maastricht criteria to prevent any potential damage to the euro.

Both arguments are one-sided. As so often, the truth is in the middle. By holding up accession to the euro, you do indeed create a "Turkey effect", feelings of not being taken seriously. But the technocrats do have a point, albeit more limited. The euro area is so large, that a bubble in say Lithuania is not going to hurt it. Even a bubble in all three Baltic states at the same time (unlikely as it is) wouldn't have much of an effect. By contrast, a bubble would have to lead to very painful adjustments in the member state concerned, which would undermine support for the EU.

The problem the technocrats have is that in reality they don't know what the "right" rate of exchange is. If they knew, they would have saved Germany a serious depression on euro entry and they would have avoided the artificial bubbles in Ireland, Spain and to some extent Portugal and the Netherlands. That means that both parties in the dispute have more wiggle room than they want to admit, it's not an all or nothing question but one of taking the chance of being wrong. It would help also to listen more to the politicos of the new entrants. After all, if they blow it, their fat behinds are on the line in the next election.

As for the estimates on entry, they are to a large extent dependent on currency markets with a good delay. When you are in a crisis, an undervalued currency may quickly become an overvalued currency, when it is tied to the euro. This will bring entry closer. Now that economies are recuperating, expect to see estimates lengthen again.

An unidentified coin is a piece of metal. An identified coin is a piece of history.