Don't rush to join the euro
A report this month from the European Commission chiding the countries of Central and Eastern Europe for failing to make adequate preparations for joining the euro could all too easily be seen as the culmination of a disappointing year for the European Union's newest member states.
To the deep political concerns about the rise of populists and chauvinists in Poland and Slovakia and the bizarre events in Hungary, it now appears that we must add a measure of skepticism about developments on the region's economic front as well.
Slovenia will join the single currency next year. But none of the others, all of which have a legal obligation to join at some point, currently meet the necessary criteria. There are increasing doubts that any will be able to do so before the end of the decade at the earliest.
There are good reasons to be concerned about backsliding on political reforms in the region since EU accession in 2004, but it would be unreasonable to use progress toward the euro zone as a yardstick for economic performance. The European Commission's report, moreover, forms part of a longstanding effort to railroad Central and Eastern Europe into a currency zone whose benefits are still unproved and which may well be inappropriate for most post-Communist countries at their current stage of development.
To argue thus has for many years been to go against a consensus in the region that is only now beginning to break down. And though it is breaking down mainly under the weight of populist rhetoric about threats to national sovereignty, there are also some real economic issues that at the very least need to be debated.
First among them is the stark reality that the euro has provided no obvious benefits to the 12 countries that currently use it. On the contrary, several euro zone countries - Germany, Italy, the Netherlands, Belgium, Austria, Ireland and Portugal - have either posted lower economic growth rates in the years since they adopted the euro or have seen no improvement.
Britain, which retains the pound sterling, has outperformed the euro zone in five of the seven full years of the single currency's existence and more or less equaled it in the other two years. Also, as the Center for Economic Policy Research noted in June, the much vaunted trade benefits of reduced transaction costs due to the absence of cross-border currency markets have been exaggerated.
The CEPR found that exports to the euro zone from the three EU countries that do not use the euro, Britain, Sweden and Denmark, have increased by 7 percent compared with 9 percent for those countries which do - hardly a dramatic difference.
There is also the question of whether relatively poor, transitional economies should be rushing to join the euro or whether they should wait until their economies more closely resemble the rest of the euro zone.
Some countries, such as Estonia and Slovakia, are already posting double-digit or near double-digit growth rates. The rest hope to be doing so soon. The European Central Bank, however, would not run its interest-rate policy to suit the likes of Slovakia and Estonia. Instead, it will focus on a general picture largely determined by countries such as Germany, France and Italy, where growth rates slumber on at between 1 percent and 2 percent. This could have inflationary implications for the region's economies.
It is true, of course, that the concept of an "independent" monetary policy is less applicable in a world of globalized capital markets and that to varying degrees the region's economies are already heavily influenced by ECB policies. But they still have some room for maneuver and it may be sensible for them to retain the ability to fine- tune economic development to suit their very specific needs, at least for a while.
The one strong argument in favor of these economies working harder to meet the euro adoption criteria is that some of those criteria - low rates of public debt, low and stable inflation rates - are good ideas in themselves. But that is simply a general argument for sound economic management.
The case in favor of adopting the single currency has too often been assumed rather than argued. When the European Commission next delivers a lecture about the euro, perhaps it should provide some hard, fact-based evidence explaining why there is such a rush and what precisely all the fuss is about.
Robin Shepherd is a senior trans-Atlantic fellow of the German Marshall Fund of the United States based in Bratislava.