The Eurozone’s Most Important Currency Is Credibility

“In recent years, the support for the eurozone has been decreasing significantly among CEE Member States,” explained Havlik. Romania is the only country that officially advocates a single currency, but even there approval has steadily declined. The ZEW analysis has provided evidence that the CEE states meet the so-called Maastricht criteria with regard to public debt and deficit, and that they have caught up considerably in terms of GDP per capita, outperforming several southern European Member States. “In contractual terms, the CEE countries meet all the requirements for joining the eurozone. This decision will, however, be based on cost-benefit considerations,” concluded Havlik. The concrete reform plans for the euro area must therefore be presented as a package of solutions that provides for a structured procedure instead of mutual cost sharing in the event of excessive public debt.

In the ensuing debate, moderated by Reuters reporter Jan Strupczewski, the panellists highlighted the CEP countries’ chances of joining the eurozone. The chairwoman of the Czech Fiscal Council, Dr. Eva Zamrazilová, stressed that a genuine and realistic convergence between East and West must first take place before the Czech Republic would consider joining the eurozone. According to Zamrazilová, the current debate on monetary union reforms focuses exclusively on risk-sharing and market discipline. When it comes to a common currency, however, ensuring uniform and fair conditions of competition are of crucial importance. “The euro, by itself, is no guarantee for economic growth. This also requires reforms at the national level,” concluded Zamrazilová.

Istvan Székely, PhD addressed the issue of monetary stability. “The financial crisis from ten years ago put the euro at substantial risk and showed that the original structure of the monetary union has considerable shortcomings,” said the advisor to the EU Commission’s Directorate General for Economic and Financial Affairs. While Hungary basically welcomes the introduction of the euro, it would like to have more say in the design of the relevant institutions. However, one must go beyond technocratic decision-making. “We cannot discuss the reform of the eurozone without talking about reforming the EU as a whole,” explained Székely.

For the CEE states, joining the eurozone at this point in time would mean trading strong economic performance for higher price volatility, explained Dr. Mateusz Szczurek. “We are talking about a sensitive process,” said the former Polish Minister of Finance, who now has a leading function at the European Bank for Reconstruction and Development (EBRD) and is a member of the European Fiscal Board. While the euro could accelerate economic growth during periods of economic upswing, it would increase disparities during phases of weak economic growth. As long as the political costs remain at a manageable level, there is no need for the CEE states to join the eurozone. And unless effort is made to implement concrete reforms, “national policies will continue to focus on keeping a foot in the door,” said Szczurek.

According to Professor Friedrich Heinemann, head of the ZEW Research Department “Corporate Taxation and Public Finance” and project leader of ZEW study, this wait-and-see attitude towards the euro and its development among CEE countries is understandable. Since the regulatory framework of the monetary union is still too vague, the CEE member states will continue to take a critical view of the eurozone as long as it is unclear how the reform plans will be implemented in practice. What is needed is a binding guarantee that euro membership will bring more stability for the individual countries. It is therefore important to “find a credible answer to the question of how to deal with eurozone states who view sanctions due to public deficits as an acceptable price to pay,” emphasised Heinemann. Currently, the eurozone is too susceptible to blackmail.

While the panel discussion focused exclusively on the intra-European perspective on the euro, the audience raised questions about how global trade should be taken into consideration in the reform efforts, and what the position of CEE states was towards EU cohesion policy – critical points that leave room for in-depth discussion.