EU newcomers assured over euro adoption

WARSAW (Reuters) – A recent loosening of the European Union’s fiscal pact should not change the prospects of EU newcomers adopting the common currency, European Central Bank President Jean-Claude Trichet said on Saturday. In the pact’s overhaul last month, EU leaders granted governments more time to get their budgets in order and offered a list of temporary excuses for breaching the deficit ceiling of 3 percent. In a gesture to new members, such as Poland and Hungary, countries where pension reforms raised budget deficits would be given five years to absorb the cost without punishment. Asked if the changes could speed up the new members’ eurozone entry, as suggested by some economists and policy-makers, Trichet told reporters: «I don’t think it changes anything as regards the entry of the newcomers in the euro area.» He did not elaborate. The ECB has criticized the decision to relax the EU’s fiscal framework underpinning the euro and Trichet, in Warsaw for an economic seminar, reiterated that the pact had to be «strictly» implemented to restore its credibility. All 10 EU newcomers want to swap their currencies for the euro no later than 2010 and for larger former communist states, such as Poland, Hungary and the Czech Republic, bringing their deficits to the 3 percent limit remains the biggest obstacle. Trichet said the newcomers needed fiscal discipline, not only to meet the euro entry criteria, but also to better absorb EU funds necessary to catch up with the bloc’s rich western members. «Consistent and stability-oriented domestic economic policies are essential not only for successful monetary integration but also for taking full advantage of the benefits of EU membership and for the catching-up process in per capita income levels,» he said. Trichet said last May’s EU enlargement from 15 to 25 members would benefit both the new and old members of the bloc. «I am convinced… that enlargement will not only bring additional dynamism and growth to the 10 newcomers, in speeding up their catching-up exercise, but will also contribute – positively and significantly – to growth in the previous 15 members,» he said. «Before the entry of Spain and Portugal, we had the same gloomy sentiment in the public of the then previous 10. After the 10 had become 12, that sentiment dissipated progressively in the face of all that Spain and Portugal had contributed.» Newcomers, along with the poorest among the old EU 15 members, are set for a confrontation with the Union’s richest member over the size of the Union budget and, consequently, over subsidies. German Chancellor Gerhard Schroeder reflected the determination of the richest countries not to budge on the issue on Saturday when he fired a broadside at the European Commission, saying Germany will not raise its payments to the EU budget and rejecting plans for opening up the services sector. Speaking at an election rally in the state of North Rhine-Westphalia, Schroeder weighed into a long-running battle with Brussels over proposals for the EU’s 2007-2013 budget. «The idea that some institutions have that we in Germany are prepared to let the European Union budget grow without limits is definitely wrong. It will not find agreement from the German government,» Schroeder said at the televised rally in Dortmund. In comments which reflect mounting concern in Germany at the prospect of workers from Eastern Europe undercutting German workers by taking jobs at low pay and poor conditions, Schroeder also insisted on job guarantees before he would agree to plans to liberalize the EU services sector. «A services directive will only be passed with my agreement if it’s crystal clear that there will be no social dumping and if the worker protection measures that we have in Germany apply to everyone and not just German workers,» he said. The plan to open up Europe’s services sector to more competition ran into a major obstacle last month when EU leaders sent back a bill on services for a rethink.

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