Eastern currency woes should worry euro zone: Poland

BRUSSELS Sun Mar 1, 2009 2:17pm EST

BRUSSELS (Reuters) - Weak currencies in central and eastern Europe should concern the European Union, Poland said on Sunday after an EU summit on the financial crisis.

Neither Poland's Finance Minister Jacket Rostowski nor Prime Minister Donald Tusk, who both spoke at a briefing after the EU meeting, elaborated as to exactly why this may be the case.

However, economists believe eurozone countries could be at a competitive disadvantage if weak central and eastern European currencies levels are prevalent when these countries come to adopt the euro -- in essence their exports will be significantly cheaper than eurozone members.

Rostowski said the current level of exchange rates, which now is a burden for the region, might become a problem for the euro zone in the longer-term.

"We have felt the pain recently, but the current exchange rates will be not only our problem but also one for the euro zone," Rostowski told a news conference.

Poland, the Czech Republic, Hungary and Romania have seen their currencies plunge against the euro in recent weeks as investors trimmed exposure to the region on fears it might be hit especially hard by the global financial crisis.

Tusk said he reminded his counterparts from the 27-nation EU that paying attention to currency stability in the bloc was enshrined in EU treaties:

"Foreign exchange stability is in the interest of the whole EU no matter how many countries belong to the euro zone."

None of the central and eastern European countries, which have floating forex regimes, are expected to adopt the euro before 2012, but they are likely to join much earlier ERM2 (Exchange Rate Mechanism 2) currency grid, a stability test for the single currency.

In ERM2, currencies are allowed to trade within a 15 percent band on both sides of a fixed parity rate, which is partly determined by market exchange rates in a period leading up to joining the currency grid.

So, one EU diplomat said, if some of those countries join ERM2 with weak currencies, they may also join the euro in a similar situation.

Tusk reiterated his center-right government aimed to join the euro in 2012, but said he was ready all discuss all aspects of the road map with the euro-skeptic opposition.

The government needs the opposition's support for push through constitutional changes needed to join the euro.

(Editing by Matthew Jones)

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