How fast towards the euro area? (I, II)
The financial crisis puts the EU countries not belonging to the euro area in a position that makes them think about speeding up the adoption of the single currency as a "shelter" solution. However, their attempts are crashing onto a wall: the Maastricht criteria, which are designed to ensure that all economies are subject to the same rules before adopting the euro.
But countries that are, at this point, in the euro area should take into consideration the lowering of these criteria - the benefits beyond providing shelter are more important than the risks involved in lowering the conditions of admission.
First, we have to take into consideration the reasons for which a country gets to be vulnerable under the pressure of the financial crisis. Four is the number of characteristics that seem to make an economy risky: its own currency; a relatively small size; the banking system exposed to international pressures; a public budget too weak to absorb the pressures that challenge the banking system. These criteria clearly suggest that even Denmark and Sweden are vulnerable. As well as Britain, although the size of its economy and the status of the sterling, although much faded, as a reserve currency seems to show certain nuances.
The same characteristics are obvious - even more significantly - in the case of the new Member States, only two of which - Slovenia and Slovakia - have managed to enter the shelter provided by the euro-zone before their economies felt the crisis. The public finances quality of these new Member States varies, but all their savings are low, their financial markets are thin, and their banking sectors are exposed, a crucial economic feature and a complicated one from the political point of view. The magnitude of this combination is reflected by the unprecedented move of the Central European Bank (CEB) to leave its favorite geographical area and support several new Member States. This move makes operational sense: CEB has provided technical assistance to central banks in neighboring countries with the euro area for a good period. It also makes sense as an instrument of crisis management: this dialogue strengthens the cooperation between the EU and its neighbors. But this does not diminish the significance of the gesture: CEB has never acted as a lender of last resort for countries outside the euro area.
The CEB decision clearly shows how much the financial landscape has changed since the creation of the European monetary union and the way in which many countries that made the transition to modern market economy became vulnerable due to these changes. During the past 20 years, the banking groups have greatly expanded their cross-border activities and, even though in theory every subsidiary of a banking group is a legal body subjected to the laws of the EU member where it is registered, in practice, the deterioration of a part of the group has significant effects on all the parts of the group. Therefore, the result was a paradox: mainly, the subsidiaries in the new member states have not been held responsible for the contagion, but the banking strategies of the groups with head offices in countries in the euro area were. In fact, CEB was forced to intervene because of the improper practices in its geographic area of responsibility. The financial support that CEB provided, for example, in the case of the National Bank of Hungary can therefore be regarded as a preventive measure aimed at maintaining stability in the extended euro zone.