While Greece may be at risk of an unplanned exit, policy makers in the European Union’s east are reopening the debate about whether to join the euro area after years of shunning the currency during the global financial crisis.
In the Czech Republic, the prime minister said on Wednesday that joining the euro soon would help the economy after the president challenged the central bank’s long-standing resistance with a vow to appoint policy makers who favor the common currency. In Poland, the main divide between the top two candidates in the May 10 presidential election is whether the region’s biggest economy should ditch the zloty.
“It’s quite interesting how the sentiment has shifted -- I’m slightly surprised by this,” William Jackson, London-based senior economist at Capital Economics Ltd., said by phone on Wednesday. “As the story coming from the euro zone in recent years has been negative, it’s very hard to imagine how the euro case for the public would be made now.”
The obstacles are many. Romania, which has set 2019 as a potential target date, and Hungary don’t meet all the economic criteria. Poland faces legal hurdles and the Czech government has said it won’t set a date during its four-year term. As a standoff between Greece and euro-area leaders threatens to push the country into insolvency and potential exit, opinion polls show most Czechs and Poles oppose a switch.
The appeal of the euro, which all European Union members save Britain and Denmark are technically obliged to join, suffered when the area had to provide emergency loans to ailing members during the economic crisis. While five ex-communist countries that joined the trading bloc in 2004 -- Slovakia, Slovenia, Estonia, Latvia, and Lithuania -- have acceded, the Czech Republic, Poland and Hungary don’t have road maps.
The region’s three biggest economies argued that floating currencies and control over monetary policy helps shield themselves against shocks like the euro crisis even if smaller countries may benefit from lower exchange-rate volatility and reduced trade costs. Facing weakening in their korunas, zlotys, and forints, some politicians in eastern Europe are questioning that logic.
The debate in the Czech Republic began again in earnest in February, when President Milos Zeman said he was “very embarrassed” that Slovakia beat the Czechs into the currency. Prime Minister Bohuslav Sobotka voiced support for “the earliest possible target date,” in an interview on Wednesday, even as his main ruling partner, the ANO party of billionaire Finance Minister Andrej Babis, isn’t ready to set a timetable.
“Even though many here don’t hesitate to present the euro as a bogeyman, at closer look we’re talking about a normal and comfortable tool to seek social prosperity,” Sobotka said in an e-mailed response to Bloomberg questions on Wednesday.
Despite the “pro-European” approach of the Czech government, political consensus will be hard to find, and euro adoption is unlikely until after 2020, Tsveta Petrova, an analyst at New York- based Eurasia Group, said in a note.
“Many in the Czech political establishment, including the most popular governing party ANO, are wary of having the Czech Republic bail out undisciplined southern EU member states,” Petrova said on Wednesday.
In Poland, opposition presidential candidate Andrzej Duda is trying to unseat incumbent Bronislaw Komorowski with the slogan “Yes to Europe, No to the Euro.” He has accused the president of trying to ruin Polish families by adopting a currency that will drive up prices.
Poland should enter the euro area only after “very precise analysis” and only when it benefits the country and ordinary Poles, Prime Minister Ewa Kopacz said late Wednesday. She said Duda’s campaign was misleading because it characterized the government as pushing for adoption.
While the campaign has drawn a statement from Komorowski that Poland may have to hold a referendum on the euro, data indicate that, at least since the economic crisis, the currency may actually aid new members rather than impoverish them.
Since 2008, the Czech koruna has weakened 13 percent against the euro and the Polish zloty, the Hungarian forint and Romanian leu have lost more than 20 percent. That has made those nations’ exports more competitive and helped drive growth and deter inflation.
But Slovaks, Slovenes and others with wallets stuffed with the common currency have seen their earning power remain steady. Slovakia is also borrowing at negative yields, earning 0.03 percent for five year debt, compared with the Czech yields of positive 0.02 percent.
The stability of the currency is also attractive to companies such as Skoda Auto AS, whose supply chain is closely tied to its owner Volkswagen AG, and utility CEZ AS, the largest publicly traded company in the region.
“The Czech economy is very closely tied to the euro area, especially Germany,” CEZ Chief Financial Officer Martin Novak said last month. “Adopting the euro would make many companies’ lives easier.”
Some countries don’t have the luxury of debate. In Croatia, the economic crisis has pushed back the timeline for entry. And even though Bulgaria’s finance minister said in January that there’s political consensus to join as soon as possible, according to a report from newspaper 24 Chasa, President Rosen Plevneliev said last month he sees entry into the currency-stability test mechanism in 2018.
Romania, the EU’s second-poorest country, needs to catch up economically to benefit from the euro, central bank Deputy Governor Bogdan Olteanu said on Thursday.
“We’ll have to increase the GDP per capita by at least 10 percent in order to be reasonably competitive inside the union,” he said.
For the bigger economies, public opinion remains an obstacle, with 76 percent of Czechs opposing euro adoption, versus 16 percent who support it, according to a survey of 1,027 people taken a year ago by pollster CVVM.
In Poland, where a constitutional amendment would be needed to give the ECB the power to conduct monetary policy and issue currency, 68 percent oppose a switch, according to an October 2014 survey by pollster CBOS.
“The issue is definitely heating up in CEE. Poland is relatively better positioned for this,” Mai Doan, a London-based economist at Bank of America Corp., said by e-mail on Wednesday. “The Czech population remains very euro-skeptic, while Romania likely still has work to do in terms of real convergence.”