ECONOMY

Slovenia welcomed as the 13th eurozone member; Lithuania fails

BRUSSELS – The European Commission and the European Central Bank (ECB) gave Slovenia the green light yesterday to become the 13th member of the eurozone in 2007, but said Lithuania’s inflation was too high to join. Slovenia will become the first of the 10 new European Union members to adopt the single currency which is now used in Portugal, Spain, Belgium, Netherlands, Germany, France, Luxembourg, Italy, Austria, Ireland, Finland and Greece. «Slovenia has achieved a high degree of sustainable economic convergence with the other member states and… it fulfills the necessary conditions to adopt the euro,» the Commission said. Lithuania, on the other hand, is the first EU country to have its application turned down after its inflation rate was just too high to qualify and was expected to rise further. The ECB, the guardian of the euro, also said Slovenia was well-placed to adopt the currency, but Lithuania was not because its average annual inflation was «just above the reference value stipulated by the Maastricht Treaty» and seen as rising. Economic and Monetary Affairs Commissioner Joaquin Almunia told CNBC the strict application of the euro entry criteria was necessary to avoid problems with future eurozone enlargement. «If we are now in our first opportunity to enlarge the eurozone creating bad precedents, not enforcing the treaty in a transparent way… when other countries with more difficult political problems come, how will we say ‘No’ to Hungary, for example, that has an 8 percent budget deficit?» Almunia asked. Slovenia’s euro entry will now be discussed in the European Parliament and by a June summit of EU leaders, and is to be given the final stamp of approval by EU finance ministers on July 11. Lithuania, meanwhile, will have to curb inflation without damaging its strong economic growth to be able to join as soon as possible, Almunia said. He pointed to tighter fiscal and wage policy and a better functioning market. «If nothing is done in the future, inflation will increase in Lithuania,» Almunia said. Lithuania said in euro entry remained an important objective and that it would keep fiscal policy tight and cooperate with the Commission on additional measures to secure euro adoption. Joy and frustration «This is one of the most important projects of Slovenia in the last decade, it is a historic event, which is unique and cannot be repeated,» Prime Minister Janez Jansa told a news conference in Ljubljana. «The euro will mean new responsibility, we will have to keep healthy public finances in the future, therefore Slovenia will not delay with reforms that are needed,» he said. Lithuanian EU Budget Commissioner Dalia Grybauskaite criticized the Commission’s decision on Lithuania. «The Maastricht criteria were set down in order to support economic stability and economic development,» she was quoted by an EU official as saying. «That is the purpose of this instrument. When it is applied in a dogmatic fashion, the instrument does not serve its purpose,» Grybauskaite said. To become a member of the eurozone, an EU candidate has to meet criteria on debt and budget deficit levels, price and currency stability, and long-term interest rate levels. To pass the price stability test, a candidate country has to have average annual inflation no higher than the average of the three best performers in the EU plus 1.5 percentage points. The inflation rates of the three – Poland, Sweden and Finland – plus the margin set the ceiling at 2.6 percent for the 12-month reference period ending in March. Lithuania’s inflation was 2.7 percent. The difference is small, but the Commission and the ECB expect Lithuanian inflation to rise further this year, while the Maastricht Treaty says the inflation criterion must be met in a sustainable way. Lithuania argues, as Greece did in 1999 when it struggled to bring down its inflation to adopt the euro, that the reference group for the comparison should be the best performers from just the eurozone, not from the whole EU. If that were the criterion, Lithuania would fulfill it. But EU officials say that even if the current criterion was created in 1992 when the eurozone did not yet exist, it is still law and candidates must meet it. Lithuania wants to now take its fight for a 2007 entry into the eurozone to an EU heads of state summit in June in the hope of changing the inflation criterion.