ECB CALLS FOR CAUTION IN EU CONVERGENCE POLICY

Views on BG | March 22, 2002, Friday // 00:00

ABSTRACTED from Reuters

By Justyna Pawlak

The European Central Bank urged European Union candidates on Thursday to strike the right balance between promoting growth and containing inflation to enable them to catch up economically with the rich western bloc.

Tommaso Padoa-Schioppa, a member of the ECB's board, said a carefully chosen timeframe for euro adoption by new members after they join the EU would ensure that fighting inflation would not hinder boosting wealth levels. "Real" convergence, whereby the economies catch up through faster growth and increased efficiency, should run parallel to "nominal" convergence towards the stability criteria enshrined in the Maastricht treaty on European monetary union, he said. European Union candidates, unlike current members, will be required to adopt the euro some time after entering the bloc and Padoa-Schioppa's comments suggested that doing so too soon might be unwise in countries facing big economic adjustment.

Some analysts say that aggressively containing inflation -- low price growth is a key requirement to join the euro -- could keep wealth levels low in candidates and in turn make them too dependent on EU subsidies after entry.

"Countries should already at present strive to achieve as much price stability as possible, hence work towards lowering inflation rate continuously," Padoa-Schioppa said. But, he added, price stability goals should take into account transitional factors which boost inflation in the candidate countries, many of which have shaken off communism in the last decade or so. A decision about the timing and the exchange rate of candidate country currencies to the euro will be taken by the ECB, central bank of the candidates and political leaders.

NO TIMING YET

Padoa-Schioppa shied away from joining a growing number of voices in the EU calling for candidates to take longer than the minimum required two years between EU accession and euro entry.

Earlier this month, ECB vice-president Christian Noyer said some east European candidates should not rush into the euro zone, even though local central bankers and politicians have said they wanted to join as soon as possible. "I believe that it is wrong to take sides in this debate in a generalised way...It is too early to give an answer to this question on a case-by-case basis...The ECB will have to take a view in due time," Padoa-Schioppa said. He also added no criteria will be required of euro candidates in addition to the Maastricht framework.

The EU has said up to 10 states -- Poland, the Czech Republic, Hungary, Slovakia, Latvia, Lithuania, Estonia, Cyprus and Malta -- could conclude negotiations this year and join in 2004. Bulgaria and Romania hope to join later in the decade.

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