Central and eastern Europe should adopt the euro to boost their credit ratings

 
Jake Cordell
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Young Czechs
Young Czechs "party" in Prague to celebrate their arrival in the EU in 2004 (Source: Getty)

Adopting the euro would be good news for central and eastern Europe, according to credit ratings agency Fitch, which has said that joining the Eurozone could help lower government debt costs and help attract external financing.

Croatia, Bulgaria, Hungary and Romania could all see their credit scores move up a notch or two if they dropped their local currencies and joined the euro, despite the economic woes stalking the Eurozone.

A better credit rating would mean cheaper cost of borrowing for governments and being in the euro could smooth cross-border transactions and reduce volatility with key trading partners, according to the ratings agency.

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Joining the euro is a “fundamental trade off”, Raoul Ruparel, co-director at Open Europe said. “You get to be part of this bloc and you get some benefits in terms of trade and reducing currency costs and other benefits in terms of stability.”

“The trade-offs are you lose control over your monetary policy and you basically have less control over fiscal policy,” he said.

Fitch said that any more states joining the euro remained a “remote possibility as it has disappeared from the political agenda”.

Country Currency Euro exchange rate EU accession
Bulgaria Lev 1.96 2007
Croatia Kuna 7.49 2013
Czech Republic Koruna 27.03 2004
Hungary Forint 311.99 2004
Poland Zloty 4.28 2004
Romania Leu 4.47 2007

The Czech Republic and Poland stood to gain the least from the move, as “the two countries would abandon a credible and independent monetary policy framework that has helped support macroeconomic adjustments”.

The Czech Republic already has a strong external balance sheet so has little to win from abandoning the koruna, while most loans to households in Poland are tied to Swiss francs, limiting the impact joining the euro would have on currency stability.

“If they do join the euro, these countries need to make sure they don’t make the same mistakes as some other countries which saw a steep increase in the cost of labour and wages [which] eroded their competitiveness,” Ruparel said, adding that new countries in the single currency could “complicate the decision-making process in the Eurozone even further.”

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