Euro now for Eastern Europe & Balkans -Why Euroization now for all Eastern Europe is the right policy!

Why Euroization now for all Eastern Europe is the right policy

Currency issues are the most sensitive in any economy and like the tax & trade system the crown jewels of economic policy. Decisions on that effect everybody from rich to poor from old to young and any segments of society. Such is the nature of currency that responsible stewardship is crucial for all decision. Past major crisis in the development of currency systems, let us say in the last 200 years since the Vienna Congress and the effort to regulate the world better, secure a certain order and allow prosperity to develop have led to ever better currency systems and shock we had many. Terrible they were and well the memory is nowhere fresher than in Ukraine & Belarus just recovering from major currency crisis after the 2014 shock of Russian aggressive war against Donbas and Crimea. Currency is about trust of the people, about their saving and pensions. It is about inflation, interest rates, devaluations. Currency is about prosperity of family acquiring property with the result of the labour and poverty and migration when things go wrong.

CEE BC is therefore not light-hearted proposing changing the currency system of Eastern Europe by accelerating the Euro adoption or pegging the regional currency with the Euro but is proposing it with the reason that this is the much more secure policy for consumers, taxpayers, savers and investor.

What is the core of the policy CEE BC is proposing? CEE BC is proposing to accelerate the joining of Croatia, Bulgaria and Romania to the Eurozone. This is anyhow happening in case of Bulgaria now – a bit too slow but OK. Romania and Croatia are anyhow legally bound to join an EU Member States and anyhow they want to join it is just a bit of discriminatory bias of Frankfurt decision makers which do not like booming but corrupt Romania and sadly quite indebted Croatia. Here more leadership from political elite of EU is needed. That is the first pillar. The second pillar is to convert the 4 currency of the Balkans WB6 starting with the pegged Macedonian Dinar and the Mark of Bosnia to the Euro now in 2019 based on the Montenegro and Kosovo model. Not joining the Eurozone that is for later but the success of Montenegro and Kosovo is proofing this the right policy and the fact of being pegged means this is not risky and the effect is very positive to secure the support of the people for NATO and EU accession. The same logic is valid for the Serbian Dinar and the Albanian LEK. It is any how very small currency areas.

Currencies are a kind of materialisation of the public trust and economic power resulting in the fiscal capacity of the state issuing & backing this printed paper. Very small economies hardly have an own. True you can have one with some hundred thousand consumers but let us see how well the currency have worked in last decade in Eastern Europe and if they are not pegged before to Mark and then to Euro or where of Economies already firm in NATO and EU. The record is simple terrible in terms of loosing value, high inflation, high interest rates and little FDI coming into such an economy with such a weak fundament.

CEE BC is very well aware about the classical economic argument for own currencies allowing flexibility and if you cannot keep up with productivity and competitiveness you can devaluate and so avoid the shocks in price wage system which are happening in Greece in last decade. Well true but you avoid the reforms as well that are anyhow required of a transition country close to EU and with a future in Eu and Euro. Because what might be true for some distant big economy in a different continent is that really as well true for a small economy east of a Eurozone with a clear strategic objective to join the EU and high export to EU and high remittances from EU and relatively close distance and relative open border to and with EU? Since 2014 now this is as well the situation for Ukraine, Moldova and Georgia which all have DCFTA and more than 40% of exports going into EU, with open Visa travel to Schengen EU and with their ambition to join the EU and NATO maybe not so positively received in some surprised EU Capitals but clear here on the ground. They similarity with Bulgaria in the 1990ies with its clear poor EU trajectory but a lot of European less keen to integrate such a poor country and Bulgaria than pegged to Mark then Euro and reforming faster simple because devaluation was no option anymore. So, they lost a lot of people but would they have stayed in a devaluation scenario? And the progress of soon Eurozone Member Bulgaria is simple amazing. Compare their super decade since 2008 with the loss of 150 Billion GDP in Greece. Well the Euro is no magic wand if you miss doing the reform and spend like a Western European welfare state and your drive the Euro Ferrari against the Wall. Greece should be the constant reminder that serious economic policy is key as well in or with the Euro as supercharger of economics. Greece is back at 2003 level and lost 15 years of progress but even 2003 Greece is at 200 Billion GDP which is the same GDP as all the 9 countries of WB9 and Ukraine, Moldova and Georgia together. So, we could afford Greece so we can afford all 9 new and well we learnt from Greece none of them will be in Eurozone before 2040 but all of them should use the Euro like Montenegro and Kosovo and so the reform required to join by time. CEE BC is recommending all 7 currencies to peg to the Euro in 2019 and the smaller ones to adopt the Euro fully with only Ukraine pegging and waiting until the trade integration has reached plus 50% which should be happening by 2022 possible earlier. Than as well Ukraine should adopt the Euro as only legal tender in Ukraine and so the only currencies left between Euro and Rubble will be Belarus, Azeris, Armenia and Turkish Lira while the best for all who want is to peg to Euro as well. Why this is key and urgent? The success of the Euro in the next years with Euro enlargement with make it more difficult to keep up the pace. Similar situation with the Dollar. Both major economies will grow so well that the small periphery will not catch up and no matter how fast you grow, how well you reform and how open you are and how competitive you will have to devaluate against the Euro leading to less investment and more migration and well you won’t catch up ever. The Euro pegged countries will have to reform faster and well the political system has to be ready for faster reform otherwise it will lead to a crisis. But all countries anyhow want to be European or not? If not stay far from the Euro and decline your way into competitiveness and let us be friends but if you want to be in EU well accelerate and adopt and integrate and the faster the better and then peg and Euro adoption is the best model by far.