EMU not on Maltas cards for now
If Malta is to join the European Union, membership of the European Monetary
Union has been confirmed as a more distant prospect, one that would
not materialise for a good deal of time after membership is attained,
EU finance ministers confirmed last weekend. Maltas Finance Minister
John Dalli was present for the meeting.
Accordingly, the Maltese Lira would remain in place as Maltas
currency for some time yet.
European Union finance ministers meeting in Malmo, Sweden last weekend
expressed a certain degree of concern over the economic impact that
could potentially arise through enlargement.
However, German Finance Minister Hans Eichel stressed that even if Malta
and its fellow applicant countries do succeed in their bid to join the
EU over the next few years, they would still be a long way off from
joining the European common currency.
The finance ministers also said that the newcomers to the EU would have
to wait some time yet before they can adopt the Euro currency, which
is due to come into common circulation in 12 EU nations next year.
"Many candidate countries are under the impression they can join
the Euro within two years after joining the union," Dutch Finance
Minister Gerrit Zalm said, "It is better to join a few years later
than under the wrong conditions."
Meanwhile, EU enlargement commissioner Gunther Verheugen said the 2004
entry date was "very, very realistic" but the date is, however,
conditional on the performance of the candidates.
Mr Eichel explained, "We want enlargement and don't want to impose
additional criteria but the existing criteria have to be fulfilled.
That could have possible consequences for the timetable."
Dr Friedrich Heinemann, an analyst at the Centre for European Economic
Research, recently warned that future changes to the highly sensitive
issue of European interest rates will need the consent of countries
such as Malta, which are likely to join the EU within the next few years.
Meanwhile, once they do join the Euro, recently admitted countries
central banks could very well hold just as much voting power in the
European Central Bank council as the German Bundesbank and the Bank
A large part of the Maltese Lira already depends on the Euro, as Malta
aligns its exchange rate to a basket composed of the Euro, the US Dollar
and the Pound Sterling with respective weights of 56.8, 21.6 and 21.6
Some incoming member states will be allowed to continue operating fixed
exchange rate systems as they move towards monetary union, as opposed
to complying with the rules of the Exchange Rate Mechanism (ERM), however,
it is thought that this agreement will have little or no direct effect
on Maltas monetary economic policy.
Maltas monetary policy is reportedly very healthy in comparison
to that of Central Eastern European accession countries and the EU has
shown faith in Maltas ability to satisfy the ERM rules in due
The impact of EU enlargement on the international monetary system largely
depends upon the success of EMU. Meanwhile, the future of the Euro depends
on several interrelated factors such as the currencys future strength,
its relative stability and the integration of the capital markets within
the Euro area.
When new countries join the EMU and accordingly adopt the Euro, the
Euros economic base expands. The associated increase in commodity
and asset trade denominated in Euros lowers transaction costs, increases
invoicing in Euros and advances the case for using the Euro as a reserve
currency by outside countries.
Enlargement poses a threat to the Euro, and this is the reason why the
French and other countries have been against last weeks agreement.
The Central European countries have not been able to build up a long
track record of sound macroeconomic policy. If the EMUs macroeconomic
and monetary fundamentals are not followed, the prospective role of
the Euro may be harmed.