Euro Hopefuls Gear Up

Despite facing considerable political and financial hurdles to meet the tough criteria for adopting the euro, Poland, the Czech Republic and Slovakia have moved to firm up plans for joining Europe's currency union by laying out road maps for euro membership by the early part of the new decade at the latest.

While the Czech Republic last month updated its euro-membership plans, Poland, which has been less than enthusiastic about Europe's currency union, has now put in place plans for a public referendum on joining the common currency.

"The question which might be raised is not if, but when we will join the euro," said Polish Finance Minister Zyta Gilowska Gilowska announcing plans for the referendum, with Warsaw insisting it will meet the economic criteria required for euro adoption by 2009.

New EU members eager to get things right

More recently, Hungary's new central bank chief, Andras Simor, has also talked about the possibility of the country successfully

slashing its 6 percent plus deficit and joining the euro zone between 2011 and 2013.

"They are trying to establish more credible timetables," said Lars Christensen, senior analyst with the Copenhagen-based Danske Bank, with plans for euro membership seen by both financial markets and international rating agencies' as a key anchor for their assessments of individual nations.

Until recently, rather than trying to knock their state finances into shape, several governments across Central Europe have attempted to bring their economies in line with counterparts in western Europe by pursuing more expansionary economic policies.

But Christensen also warned that the Central European nations' plans are still very vulnerable to forces beyond the control of the national governments and could start to unravel, if the global economy suffered a major setback this year undercutting Central Europe's fast-paced growth rates.

Or for that matter, if oil prices suddenly jumped up or if the region's markets were engulfed by another major shake up.

All eyes on Slovakia

So far, of the 10 new members that joined the EU about three years ago, only the small former Yugoslavian state of Slovenia has managed to pass the strict set of fiscal tests for euro membership. It became the euro zone's 13th member in January.

But a key test of the EU newcomers prospects for taking another decisive step towards greater European integration is likely to come in the next few months when the next major candidate for euro membership -- Slovakia -- gears up for its ambitious drive to join the common currency by January 2009.

Slovakia now has about a year to ensure that its state finances are ready for joining the euro with both the European Commission and the European Central Bank to rule during the first half of 2008 on whether the nation will be able to adopt the common currency.

Meanwhile, central banks in leading central European states have been moving to converge their monetary policy with the euro zone.

Helped by rising national currencies, Bratislava's monetary authorities last week lowered borrowing costs in Slovakia by 25 basis points to 4.5 percent. However, the national banks in both the Czech Republic and Poland held rates steady at 2.5 percent and 4.0 percent respectively. The European Central Bank is expected to raise the cost of money again in June to 4.0 percent.

While Hungary's central bank held its prime rate on hold at 8.0 percent for the fifth consecutive month, the nation's monetary authorities are expected to launch a new rate-cutting cycle during the second half of the year.

Slovakia's failure could be setback to euro hopefuls

But Slovakia's failure to be flagged through as the euro zone's 14th member state could be seen as a setback for other nations seeking to join the euro.

This is especially the case following the uproar caused last year after Lithuania narrowly missed out on its plan to join the euro because its inflation rate came in marginally above the very tight inflation reference rate for euro candidates, which is below 3 percent.

Apart from possibly sending rating agencies scurrying to lower their ratings for nations in the region, it could trigger a wider debate about euro membership.

Despite plans for holding the referendum, Poland is not expected to abandon the zloty and to formally join the euro in 2013.

The Czech government's aim is to merge its currency with the euro adoption by 2012, two years later than originally planned.