By Chris Jones - 15th June 2006
EU leaders will ask for clarification of eurozone entry criteria in a bid to head off a row over Lithuania’s failed attempt to join the single currency.
The European commission’s economic and monetary affairs department has asked EU leaders to seek clarification from the European central bank about how it assesses inflation levels.
The ECB uses two different definitions for assessing price stability – one for convergence reports on euro preparedness and another for its overall monetary policy.
Lithuania’s president Valdas Adamkus had been expected to criticise the criteria for joining the single currency at the EU summit today after his country missed out on euro entry after failing the inflation criterion by just 0.07 per cent.
The definition of inflation set out in the Maastricht treaty, which established the single currency, is based on the average rate in the three best-performing member states plus 1.5 per cent.
Two of the three best-performing countries used to set the inflation threshold were Sweden and Poland, and some countries have called for only eurozone inflation rates to be taken into account.
There is widespread feeling among the new member states in central Europe that the inflation rule is unfair, penalising countries with some of the highest economic growth rates in the EU.
They have support from MEPs, who recently called on the commission to take into account the fact that countries such as Lithuania with strong economic growth will inevitably have higher inflation rates as they try to catch up with larger EU economies.
Critics of the current system have also pointed out inconsistencies in the application of the rules – Belgium, Greece and Italy were all allowed to join the euro despite failing to meet all of the necessary criteria, especially those concerning public debt levels.
The commission is thought to be concerned that bending the rules for Lithuania would set a precedent allowing other new member states such as Poland and Hungary, whose economies are not as healthy, to join the eurozone before they are ready, weakening the single currency as a whole.
More importantly, it could also be seen as a sign of weakness by the commission at a time when several of the 12 eurozone members – Greece, France, Portugal, Germany and Italy – are facing sanctions over excessive budget deficits.
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