Hungary's Prime Minister has called on the EU to speed up procedures allowing new members to swap their national currencies for the euro. A downturn in eastern Europe could hurt lenders in richer western nations.
Hungary sees euro zone accession as key to fighting financial crisis
Hungarian Prime Minister Ferenc Gyurcsany said a quicker entry into the euro zone would help eastern Europe counteract the current economic crisis.
"The best protection against foreign exchange problems is to join the euro zone," Gyurcsany told journalists in Brussels on Tuesday, Feb. 24. "We should see how the steps towards the euro could be made quicker."
In particular, countries which have met the EU's strict rules on inflation and budget discipline should be allowed to join the single currency without having to spend two years in the preparatory "Exchange Rate Mechanism 2," Gyurcsany said after talks with European Commission President Jose Manuel Barroso.
"Without relaxing the conditions of euro accession, do we have to wait two years in the anteroom?" Gyurcsany said. "Is it important to keep these countries in the lobby for so long?"
Barroso said while the EU's executive was keen to see all EU newcomers join the euro, those countries would have to meet the criteria for joining the currency, and would have to win the approval of current members for any fast-track accession.
Crisis hitting eastern Europe hard
Gyurcsany wants Hungary to quickly switch to the euro
According to ratings agency Standard & Poor's, rapid growth in eastern Europe is "shuddering to a halt."
"All the ingredients for a crisis are in place," it said in a report. This was due to rising government debt and a heavy reliance on foreign lending, often foreign currency loans for real estate purchases.
In order to join the euro zone, members have to keep their inflation below agreed levels and maintain their government budget deficits at below three percent of gross domestic product. According to the commission, Hungary's 2009 deficit should fall below this mark for the first time in over a decade.
Currently, 16 of the 27 member states have the common currency euro.
"The euro has been a very important factor of stability -- a shield of protection," Barroso said.
EU support for Hungary
Jose Manuel Barroso says Hungary has responded appropriately to the crisis
Eastern European currencies have fallen strongly against the euro in recent months. In October, the commission agreed to give Hungary 6.5 billion euros ($8.3 billion) as part of an international rescue plan with the International Monetary Fund and the World Bank. It is aimed at reinforcing the Hungarian currency forint.
Barroso said Hungary's crisis response plan showed the "right policies."
"Our assessment is positive and the next installment will be paid at the end of March," Barroso said, without giving an amount. The Hungarian government had agreed to tight budgetary policies in exchange for the massive lifeline to help it avert default. However, the economy was still experiencing major problems, Gyurcsany said.
"We're in serious trouble indeed," the Hungarian prime minister said.
Author: Sabina Casagrande (dpa/afp/ap)
Editor: Trinity Hartman