FRANKFURT (Reuters) – None of the countries now looking to join the euro meet all the accession criteria and some may be diverging from the long-set rules of euro membership, the European Central Bank said in a report on prospective members.
All European Union members besides Denmark are obliged to join the euro, but most are dragging their feet, mostly because of lingering doubts over the currency’s viability since the bloc’s debt crisis nearly a decade ago.
Although Croatia and Bulgaria are both in the process of applying and have made progress, both struggle with some criteria, particularly with regard to governance, an area the EU in increasingly focusing on, the ECB’s biennial Convergence Report showed.
“Except in Sweden, the quality of institutions and governance is relatively weak in the countries under review – especially in Bulgaria, Romania, Croatia and Hungary,” the ECB said.
Inflation is higher than allowed in five of the seven prospective countries and the ECB said it was concerned over the sustainability of inflation convergence in most of them.
The ECB targets inflation at below 2% but has undershot that target for the past seven years. Most central European states are running inflation rates closer to or above 3%.
But most countries met criteria on debt, deficit and interest rates, the ECB said, adding that its report only considers the impact of the coronavirus pandemic to a limited extent, given the unusual uncertainty it has created.
Still, it noted that most of the countries are facing a surge in budget deficits, a consequence of spending everywhere to weather the pandemic.
The ECB added that none of the countries complied with the legal requirements for central bank independence and all but Croatia failed to meet the requirement on the prohibition of monetary financing, key foundations of modern central banking.
(Reporting by Balazs Koranyi, editing by Larry King)