Study: Accession states will postpone euro adoption

A study by Bank Austria Creditanstalt has concluded that Central and East European countries scheduled to join the EU in May 2004 are likely to postpone adoption of the euro until 2008.

Macroeconomic analyst Stefan Bruckbauer, said that the CEE countries should start with the introduction of the euro somewhat later than scheduled.

Bruckbauer said that based on current economic conditions, "participation in the euro from 2008 would seem to be a realistic assumption for at least some of the accession countries".

He said the first wave of the CEE accession candidates will not join the Exchange-Rate Mechanism (ERM II) until 2005, or at least six months later than already assumed.

This includes Estonia, Latvia, Lithuania and Slovenia.

The Czech Republic, Hungary and Poland might not follow until the end of 2006, he said.

Accession countries are expected to keep their currencies in the ERM II for a minimum of two years, meaning euro-adoption would be staggered from 2008 and 2010.

Bruckbauer said that as the CEE economies catch up with the EU, their rising productivity will likely generate inflationary pressures, especially for goods and services that cannot be traded internationally, such as housing prices or personal services.

He also warned that since the Maastricht criteria on fiscal discipline among the EU states offer no dispensation for individual countries, inflation (in those countries) would have to be suppressed prior to membership, which could result in a slow-down in economic development.