New members face delay to adopting euro

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Rising inflation rates could delay some of the European Union’s newest member states adopting the euro, the European Commission has warned.

Lithuania, Estonia and Slovenia plan to be the first of the 10 new member states to join the single currency in little over a year.

The accession countries, which joined the EU in May 2004, are legally committed to adopting the euro.

But they are fighting rising inflation, which could put them in breach of the 12-country eurozone’s entry rules and set back their entry dates.

Joaquin Almunia, monetary affairs commissioner, said: “We are aware of the difficulties of all these three countries to fulfil some of the economic criteria, particularly the inflation criteria.”

He added that the Commission would be “strict” in enforcing the rules, which as well as inflation controls, include tests on national debt, deficits, exchange rate stability and interest rates.

The Commission and the European Central Bank will next year issue reports on countries’ progress in meeting the criteria and European leaders will decide whether they can enter the eurozone.

Inflation was at an annual average 2.7 per cent in both Slovenia and Lithuania in September.

Estonia’s consumer prices rose in September by 4.9 per cent compared with the same month last year, well above the target rate of about 2.5 per cent.

Andres Sutt, Estonian central bank deputy governor, said this year’s average rate was likely to come to about 4 per cent, but the country remained committed to joining the eurozone on January 1 2007. “There is no sense here that 2007 is out of reach,” he told the Financial Times this week.

Cyprus, Malta and Latvia expect to enter the eurozone in 2008, with Slovakia planning to join in 2009.

The Czech Republic and Hungary have delayed their target date to 2010 but Budapest might have to miss that date because of government over-spending. Poland, the largest of the accession countries, has not fixed an entry time.

The prospect of delays comes as public support for euro adoption has fallen in the European Union’s newest member states, a Commission survey found.

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