Posted 12/29/2022 at 6:54 am Updated Dec 29, 2022 at 7:24 am
With Croatia’s entry into the euro on January 1st, the European Monetary Union will have twenty member states. Christine Lagarde, the governor of the central bank, in October hailed a “show of confidence in the eurozone,” which had not admitted a new country since Lithuania in 2015. Almost 350 million Europeans use the second world currency after the dollar.
But in reality the ‘engine’ of euro membership now appears to be deadlocked. Seven countries of the Union remain outside the euro zone and none are to join it in the short term: Denmark, Sweden, Poland, Hungary, the Czech Republic, Bulgaria and Romania.
Reduced fluctuations
The two Scandinavian monarchies benefit from an “opt-out” that entitles them not to adopt the euro. Denmark has refused to go down the path of economic union since the early 1990s, as has the UK when it was a member of the EU.
Sweden finds itself in the same de facto situation, following a referendum in 2003 that overwhelmingly rejected the changeover to the euro. Neither the Swedish krona nor the Danish krone will therefore disappear in the foreseeable future. However, the two currencies are closely linked to the euro, especially Denmark, which is part of the European exchange rate mechanism: fluctuations against the common currency are very small. “These two countries could easily join the euro if they had the political will, because they meet all the necessary criteria,” stresses Zsolt Darvas from the Bruegel Institute.
In theory, the five states of Central and Eastern Europe should adopt the common currency, but membership still seems a long way off. Zsolt Darvas believes Bulgaria is the closest to the goal. The poorest country in the Union has been a member of the European exchange rate mechanism since 2020. But the finance ministers of the 27 decided last summer that, unlike Croatia, it does not meet the necessary criteria for joining the euro: price stability is not strong enough and the independence of the central bank is insufficient, they judged.
“Unacceptable and arbitrary”
An “unacceptable and arbitrary” decision for Zsolt Darvas, who highlights the remarkable progress made by successive Sofia governments in recent years: stable exchange rate, balanced public accounts, reduced debt… “When will the country get a second chance? asks the expert.
Less advanced Romania is “waiting for the right moment” to start the membership application process. The budget situation is less favorable than in Bulgaria, inflation is high and the lev exchange rate is more volatile.
Euroscepticism
Above all, Poland, Hungary and the Czech Republic lack the political will. The nationalist governments in Warsaw and Budapest proudly show their Euroscepticism and want to keep their national currency. Czech Prime Minister Petr Fiala also said this summer that his country would not join the euro in the foreseeable future. “The issue is not on the table at the moment,” he said.
“That’s actually not a problem for the euro zone,” believes Zsolt Darvas. The admission of these countries would only marginally strengthen the common currency. The 20 countries of the monetary zone already represent more than 85% of the Union’s GDP.