With Article 50 triggered and Brexit negotiations about to begin, the EU has responded as it always does and proclaimed that “more Europe” is required.
A leaked memo from a secret meeting in Strasbourg, seen by German newspaper Frankfurter Allgemeine Zeitung, suggests the European Commission will force all EU member countries to adopt the common euro currency by 2025.
In order to force through membership of the euro, the EU will have to shred all of its entry rules, ignore the domestic political elite of each country, and walk over the wishes of a substantial majority of the members’ populations.
Currently the euro is used by 19 EU member states, with Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, and Sweden (and the UK, of course!) all keeping their national currencies for the moment. This document is saying that the lev, kuna, koruna, forint, zloty, leu, and krona will all be consigned to history within eight years.
But joining the euro comes with a set of rules which must be met beforehand. Firstly, the inflation rate cannot be higher than 1.5 percentage points above the rate of the three best-performing member states. The three states with the lowest inflation rates in the EU are: Slovakia (0.8 per cent), Finland (0.85 per cent), and Ireland (0.9 per cent) making the upper limit for the seven 2.4 per cent.
This rules out Bulgaria which has inflation running at 2.6 per cent. Furthermore, this is before the inflationary impact of switching currencies is taken into consideration; as a country adopts the new currency retailers have a tendency to round up prices which can have a substantial upward impact on inflation.
Secondly, the government deficit cannot be higher than 3 per cent of GDP and public debt cannot be higher than 60 per cent of GDP.
Currently all the seven states have their deficits within the EU ceiling, but since 1995 Bulgaria has run deficits higher than the 3 per cent upper limit three times, Croatia 14 times, the Czech Republic once, Hungary 17 times, Poland 18 times, Romania 11 times.
Only Sweden has stayed in the limits in that period, although during the banking crisis of the early 1990s they ran substantial deficits. Croatia has a national debt of 87 per cent of GDP and Hungary 75 per cent so without substantial austerity measures they could not qualify for euro membership.
Exchange rate mechanism
Thirdly, the candidate has to participate in the exchange rate mechanism (ERM II) for at least two years without strong deviations from the ERM II central rate and without devaluing its currency’s bilateral central rate against the euro in the same period.
With Poland’s central bank governor saying that the country would never join the euro while the currency itself was in danger, President Orban of Hungary saying that they would steer well clear of the euro for decades, and the Czech finance minister Andrej Babis, one of the country’s most popular politicians, saying he does not favour swapping the crown for the euro, even getting to this first stage seems unlikely.
The final hurdle is that the long-term interest rates in the candidate country should not be higher than two percentage points above the rate of the three best-performing member states in terms of price stability.
Long term rates in Germany are 0.4 per cent, the Netherlands 0.6 per cent, and Austria 0.68 per cent. On this basis Croatia (3 per cent), Hungary (3.2 per cent), Poland (3.3 per cent), and Romania (3.7 per cent) would all be barred from entry without substantial manipulation; a scenario that caused crashes in Ireland, Greece, Portugal, and Spain as hot money flew in as rates were slashed to meet the criteria.
Then there is, of course, the question as to whether or not the people actually want to give up their currency and take on the euro.
According to the latest opinion polls conducted by the EU a majority of citizens in Romania (64 per cent), Hungary (57 per cent), and Croatia (48 per cent) is in favour of introducing the euro, while a majority of citizens in the other four countries surveyed is against: Czech Republic (70 per cent against), Sweden (68 per cent), Poland (56 per cent) and Bulgaria (48 per cent).
There were many different reasons why people campaigned and voted Leave, but the one clincher for me was that a country should have the right to determine its own destiny. Ingrained into the DNA of the EU is a habit of forcing itself on the will of member states, regardless of the consequences. It will change its own rules, and run roughshod over local concerns, and try to defy economic logic. The holes in this new thrust for greater integration are so wide that it will end in failure, not just for the euro, but for the whole EU itself.