25 April - 1 May 2001

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EMU not on Malta’s 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. Malta’s Finance Minister John Dalli was present for the meeting.
Accordingly, the Maltese Lira would remain in place as Malta’s 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 of England.
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 per cent.
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 Malta’s monetary economic policy.
Malta’s monetary policy is reportedly very healthy in comparison to that of Central Eastern European accession countries and the EU has shown faith in Malta’s ability to satisfy the ERM rules in due time.
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 currency’s 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 Euro’s 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 week’s agreement. The Central European countries have not been able to build up a long track record of sound macroeconomic policy. If the EMU’s macroeconomic and monetary fundamentals are not followed, the prospective role of the Euro may be harmed.

The Business Times, Network House, Vjal ir-Rihan San Gwann SGN 07
Tel: (356) 382741-3, 382745-6 | Fax: (356) 385075 | e-mail: editorial@networkpublications.com.mt