European Union states in central and eastern Europe should consider scrapping their currencies in favour of the euro even without formally joining the eurozone, according to a confidential report of the International Monetary Fund, as cited by the Financial Times.

The eurozone could relax its entry rules so countries could join as quasi-members, without European Central Bank board seats, says the fund.

"For countries in the EU, euroisation offers the largest benefits in terms of resolving the foreign currency debt overhang [accumulation], removing uncertainty and restoring confidence.

"Without euroisation, addressing the foreign debt currency overhang would require massive domestic retrenchment in some countries, against growing political resistance."

The IMF, which forecasts a 2.5 % decline in regional gross domestic product in 2009, estimates that "emerging Europe" - including Turkey - must roll over USD 413 B in maturing external debt in 2009 and cover USD 84 B in projected current account deficits.

The report estimates that "the financing gap" - money needed from international financial institutions, the EU and governments - will be USD 123 B this year and USD 63 B next, or USD 186 B in total.

The IMF report was compiled to support a campaign by the fund, the World Bank and the European Bank for Reconstruction and Development to persuade the EU and eastern European states to back a region-wide anti-crisis strategy, including a regional rescue fund. The campaign failed amid widespread opposition from both west and east European states.

Eurozone members also oppose easing the eurozone's entry rules, as does the ECB.

Bulgaria's entry in the eurozone, initially scheduled for 2010, has been set back for some time around 2012. Experts say it is conditional on continued fiscal prudence and lower inflation.

In fact, Bulgaria has yet to join the Exchange Rate Mechanism, the "waiting room" for euro membership, amid concerns about its inflation rates and external trade imbalances. Stricter application of membership criteria has also been a factor in the delay.

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