Future EU members demand softer exchange rate mechanism

Central Bank governors from Poland, Hungary and
the Czech Republic have urged the EU to soften its conditions
for their entry into the euro-zone.

In a joint interview for Financial Times Deutschland, the
three central bankers criticised the conditions for the
fluctuation of their currencies against the euro within the
Exchange Rate Mechanism II (ERM II). The future EU Member
States will have to spend two years in the ERM II prior to
joining the single currency.

There are two different interpretations
of the ERM II rules. The European Commission and the
European Central Bank insist that the fluctuation margin
ought to be 2.25 per cent, while the Maastricht Treaty
allows a 15 per cent margin.

Zdenek Tuma, governor of the Czech
central bank, said that the ERM II system should be made
more flexible. Leszek Balcerowicz and Zsigmond Jarai,
governors of the central banks of Poland and Hungary, said
that they understand the fluctuation margin "as a large
corridor, not 2.25 per cent". Balcerowicz added that a
narrow fluctuation margin would practically mean a fixed
rate, which could pose "unnecessary risks" for the new
Member States. The governors warned that investors could
speculate in the foreign exchange market, forcing the
central banks to intervene. This could quickly push the
currencies outside the fluctuation margin.

Hungary intends to join ERM II in
mid-2004. Poland and the Czech Republic count on euro-zone
membership between 2008 and 2010.


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