Inflation seen as threat to euro entry

FRANKFURT (Reuters) – Inflation caused by economic catch-up with Western Europe is the main threat to swift adoption of the euro, Bulgarian and Romanian central bank officials said yesterday. Both Bulgaria and Romania are scheduled to join the European Union on January 1, 2007, and are trying to get their economies in shape to join the bloc’s single currency. Countries which want to join the euro have to meet strict conditions on inflation, government finances, public debt, long-term interest rates and currency stability, known as the Maastricht criteria. Meeting the inflation criterion of price growth within 1.5 percentage points of the EU’s best three performers’ average could prove difficult, as poorer economies with faster growth than their richer neighbors often have higher inflation. «Inflation will be the hardest thing to fight. To completely counteract growth-driven and administrated price increases is not possible,» said Cristian Popa, deputy governor of the National Bank of Romania. Popa, speaking at a banking conference in Frankfurt, confirmed previous plans to join the euro in 2012-2014. Romania also planned to meet the Maastricht criteria before entry into ERM-2, Popa added. By contrast, Bulgaria – where the lev is already pegged to the euro – wishes to join ERM-2 as soon as it enters the EU, Tsvetan Manchev, deputy central bank governor, said. But he urged the European Central Bank and the European Commission to relax the inflation rules for euro membership. «The inflation criteria of Maastricht are very strict, and may require reaching inflation even lower than the ECB targets. Given this, we expect that the Commission and the ECB will show greater flexibility on countries’ inflation performance,» Manchev said. Bulgaria’s currency board arrangement made it difficult for the central bank to control inflation over the short term, but the country would keep it until euro entry, Manchev added.

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