Wednesday, May 7, 2008

Slovakia and the Euro

Slovakia is now a virtual lock for joining the Euro next year, missing just a formality (a ministerial meeting). But the approval comes with serious reservations. Indeed, while the current economic numbers fit the requirements, it is clear to everyone this will not last, especially for inflation. Then why approve?

The problem is that precise rules have been established for entering the Euro-zone, and to avoid politicizing the process, these rules are strictly applied. To the point of absurdity, like in the Lithuanian case two years ago: inflation was to high by a minuscule amount, and the application was rejected despite the fact that Lithuania has no monetary policy as it is in a currency board with the ... Euro. Yet, Slovenia got in the same year with OK numbers on the very application date, but not before (or after).

It looks like the rules for entering the club have not been thought through. But it is nevertheless a good idea to apply rules. I only wish they would be applied for those already in the monetary union, where especially the large economies seem to be doing pretty much what pleases them.

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