East EU's Currency Dilemma Resurfaces as Orban Sees Crossroads

  • Euro may be more than economic choice, Hungarian premier says
  • Eastern Europe's biggest economies have resisted euro adoption

The European Union is facing a potential crossroads, with countries that use the euro targeting deeper integration, while others face the dilemma of whether to give up national powers or be left out, Hungarian Prime Minister Viktor Orban said.

Orban, one of the most outspoken opponents of relinquishing national sovereignty within the EU, has until recently emphasized the disadvantages of euro adoption for poorer countries in light of the currency’s crisis. The stakes have now risen as the idea of a more integrated “core” EU is increasingly a topic of conversation in euro-area countries, the Hungarian premier told his nation’s ambassadors in Budapest on Monday. He didn’t name the nations he considers more inclined to favor a federalized Europe.

“Several countries have embraced much more seriously than before the idea of deeper integration after the common currency,” Orban said, adding that this posed “a challenge” for all non-euro EU nations. “Do we join the group of countries using the euro and give up the most important elements of our national sovereignty or do we stay outside and retain our independent economic policies, with all of its consequences?”

Eastern Holdouts

Five of the 11 ex-communist eastern European countries that joined the EU since 2004 have adopted the euro. The biggest ones -- Poland, Czech Republic, Hungary and Romania -- haven’t, even as their membership terms bind them to work toward that goal. Orban on Monday was non-committal, though he said entry would entail amending the constitution, which requires a two-thirds parliamentary majority he doesn’t have.

Hungary, like its neighbors, has scrapped several euro-adoption target dates since joining the EU. In 2013, Orban said the issue should only come up again once the nation’s per- capita economic output reaches 90 percent of the euro area. The government may decide on entry by 2020, Antal Rogan, now Orban’s chief of staff, said in January 2015.

That mirrors the Czech, Polish and Romanian positions. Officials from Czech Prime Minister Bohuslav Sobotka’s Social Democratic party have said 2020 is the earliest possible date for making the currency switch. In Poland, President Andrzej Duda won an election last year with the campaign slogan of “Yes to Europe, No to the Euro.” For Romania, 2022 or 2023 may be an appropriate time to join the euro area as the 2019 target date has become “unfeasible,” central bank Deputy Governor Bogdan Oltenau said in September.

‘Forgotten’ Euro

“Eastern Europe has all but forgotten about euro adoption,” Viktor Szabo, who meets with the region’s policy makers regularly and helps manage $11 billion of emerging-market debt at Aberdeen Asset Management Plc, said by phone.

That’s no surprise, according to George Friedman, the one-time head of the consultancy Stratfor who’s now the chairman of Geopolitical Futures. He points to the euro crisis as evidence that a single policy for Europe can’t bridge “different realities,” including different levels of development within the euro area, let alone outside of it.

“The failure of the EU since 2008 has been that instead of a convergence of the European realities there’s been a massive failure of convergence,” Friedman said by phone from New York. “For Hungarians or Poles, their reality is completely different from the reality of the Portuguese. It’s a fantasy in that there can be a single European policy to bridge these realities.”

No Deepening

The dilemma over the euro is accentuated by eastern Europe’s defiance of common EU policies to deal with the largest influx of migrants since World War II. Orban last week called a national referendum to bloc mandatory quotas.

Eastern European countries may be emboldened by the success of the U.K. in loosening the terms of its EU treaty. The aim is for the region’s countries to create distance from the center of power while holding on to the advantages of membership, according to Michal Baranowski, director of the Warsaw office of the German Marshall Fund.

“There’s absolutely a clear desire not to be on the periphery,” Baranowski said. “But the question of how not to get stuck on the periphery is not by joining the integrationist core, but to create an EU which has at least aspects of lower integration and is based on nation states. That obviously requires others to buy into a different model of Europe. Otherwise, you might end up on the periphery.”

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