Today’s decision by the credit ratings agency Moody’s to slash the Eurozone outlook has caused the leaders of Poland and Bulgaria to delay their plans to join the single currency.
Bulgaria, the EU’s poorest member has dropped its plans to adopt the single currency in response to the deteriorating state of the Eurozone economy. The region is set to enter recession in the third quarter after GDP fell across the board and the credit crisis rages on in Spain and Greece.
Joining the Euro had been a long-time goal for several Bulgarian governments but Finance Minister Simeon Djankov told the Wall Street Journal; “Right now, I don’t see any benefits of entering the Euro zone, only costs. The public rightly wants to know who we would have to bail out when we join. It’s too risky for us and it’s also not certain what the rules are and what they will be in a year or two.”
Bulgaria is one of the EU’s most indebted member nations but has taken steps to tighten its fiscal discipline and avoid risks to the lev currency, which is pegged to the Euro. Bulgaria enjoys the luxury that Greece and Spain do not of being able to print more cash in an effort to assist their economy. Entering the Eurozone would prove to be very dangerous for the country and would almost certainly see it end up in difficulty.
Djankov expects Bulgaria’s economy to expand by as much as 1.5% in the third quarter, a figure that is far better than most Euro members. He also warned that the Euro zone will face up to five years of zero growth if the regions leaders fail to fully back German calls for greater fiscal consolidation.
Poland’s keenness to enter the Euro has also paled in recent months as the country enjoys economic growth but sees the EZ struggling with crisis after crisis. Foreign Minister Radoslaw Sikorski said that Poland hasn’t abandoned the idea of joining the Euro completely but that it would only join once the regions member nations resolve their financial problems.
He told a German newspaper; “We have committed ourselves to introduce the Euro, we are obliged to do this, and Poland’s population backed this in a referendum.” Sikorski went on to suggest that the EZ should see further integration in a bid to make the area ‘governable’.
“That was the only sensible choice for Poland,” Vladimir Rozhankovsky, chief analyst from Nord capital told news site Russia Today. “The country has a developed agriculture and export of black metals. It enjoys 4% annual growth, which is comparable to Germany. Poles have no reason to change their strong currency for indebted euro.”
Rozhankovsky added that former countries of the Soviet bloc such as Poland and Bulgaria closely watch their neighbours, which adopted the euro, to find out if it was worthwhile. “They saw that living conditions in these countries worsened due to the competitive disadvantage. So they decide to stay away from the euro,” he explained.
Bulgaria’s stance has been shared by other potential Euro members including Latvia and Lithuania whose Prime minister said that his country would only join when Europe was ready, when that will be is anyone’s guess.