By Michael Winfrey, Economics Correspondent, Central Europe
and the Balkans
PRAGUE, May 8 (Reuters) - Slovakia's green light to the euro
zone is a positive signal for other ex-communist hopefuls, but
it will be at least four years before another of these countries
wins the right to adopt the single currency.
Bratislava's feat of steering the twin planets of politics
and economics into convergence was rewarded on Wednesday when
the European Commission gave it the green light to join the euro
zone next January.
But it has eluded most of the other European Union newcomers
obliged to ditch their currencies for euros.
"To get into the euro zone, there are two things you need:
economic readiness and political will," said Radoslaw Bodys, an
analyst at Merrill Lynch. "Slovakia is the only country that had
both... You won't have a quick followup from any other country."
The three biggest -- Poland, Hungary and the Czech Republic
-- are on divergent paths. None have entered the ERM-2 waiting
room where they must keep their currencies in a plus or minus 15
percent band against the euro for two years before adoption.
Warsaw, the most eager, is seen joining in 2012, according
to a Reuters poll taken last month. The Czechs have pledged to
take their time, and the market forecasts Hungary, a country
with large budget woes, waiting until 2014.
"None of these countries have already entered ERM-2 and some
of them face serious challenges in the fiscal area (especially
Hungary)," Erste Bank said in an analysis.
But Erste said their flexible exchange rates put them in a
better position to fulfil the euro zone's inflation criteria
than Baltic states Estonia, Latvia and Lithuania.
Their units are fixed to the euro, reducing their ability to
tame high price growth, a snag that popped Lithuania's 2007 euro
zone bid and weighed on the others' plans as well.
Bulgaria, the poorest EU member, also has a pegged currency
and its inflation hit 14.2 percent in March, making its 2012
entry goal difficult. Its neighbour Romania is aiming for 2014
but its central bank says price growth might put that at risk.
Slovenia blazed the trail into the euro zone among new
member states in January 2007, and was followed at the start of
this year by Cyprus and Malta, neither of which has a communist
past.
MARKET OPPORTUNITIES
Analysts said that while Slovak convergence plays would be
taken off the table when they join in January, it was still open
season for investors in the biggest central European states.
"There's a lot still to play for. So much is tied to
politics and the political cycle that you could still see a
change in the preparedness of the other three" said Ivailo
Vesselinov, EMEA economist at Dresdner Kleinwort. "It's still
very much an open question as to who's next and when."
Poland meets most of the euro zone criteria and the centre
right government hopes to join ERM-2 in 2009. But it has said
adoption is unlikely before the end of its term in 2011.
The ruling Socialists in Hungary -- once seen as a euro zone
frontrunner -- have tamed a huge budget gap with tax hikes and
subsidy cuts, but its plans for broad public sector reforms now
lie in ashes after its coalition partner quit its side.
Those cuts may be under threat if the Socialists revert to
spending ahead of 2010 elections to rebuild their very low
support -- a move that could again nudge the euro out of reach.
The Czechs are in no rush. They say ensuring the economy is
well prepared before giving up independent monetary policy and
the floating crown is more important than quick entry, and its
central bank chief has even suggested 2019 would be a good date.
"The economy could certainly deal with all its troubles by
then and could benefit from what the introduction of the single
currency brings while avoiding possible negative impacts,"Zdenek
Tuma told business weekly Ekonom in an interview in January.
(Editing by Gerrard Raven)
