Don't count on eurozone expansion
Opposition to euro entry is growing in eastern Europe. With the rules governing the currency 'completely wrong' for fast-growing countries, could the EU be in for a nasty surprise?
Europe's political integration may have stalled after the EU Constitution was rejected by French and Dutch voters, but at least monetary union is on track: the 10 new entrants in 2004 are committed to eventual euro entry. Or so Brussels thought. But could they be in for another nasty surprise? As Matthew Lynn notes in The Business, "the sound of gears being thrown into reverse" across eastern Europe is "deafening". The Estonian government, which had intended to join in 2007, has officially delayed entry by a year; the Hungarian finance minister opposes the euro and the Czech finance minister has wondered aloud how the currency has helped its members.
You can see why, says Lynn. The rules governing the euro "are completely wrong" for fast-growing countries. Keeping budget deficits to 3% of GDP makes little sense for states needing to bolster spending on infrastructure to underpin rapid growth. It also seems illogical to sacrifice GDP to drive inflation down to very low western European levels; Estonia's inflation of 4% is hardly excessive with growth at 11%. And why would eastern European countries want to converge with the sclerotic, high-tax eurozone when its own model of flat taxes and minimal regulation is working? Don't count on the eurozone getting much bigger.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
-
Nationwide hikes FlexPlus current account fee by £5 a month – is it worth it?
Nationwide’s FlexPlus current account is a favourite with customers, but it’s worth checking whether you are taking advantage of the perks after the monthly fee went from £13 to £18
By Katie Williams Published
-
Santander launches online pension that offers up to £1,000 cashback
Santander's self-invested personal pension offers customers cashback of up to £1,000 if they invest before 25 April next year - here is everything you need to know
By Chris Newlands Published