Analysis: Isolation fears push outsiders to embrace euro zone

BRUSSELS Tue Dec 13, 2011 8:37am EST

Euro coins are seen in this photo illustration taken in Rome, December 9, 2011.  REUTERS/Tony Gentile

Euro coins are seen in this photo illustration taken in Rome, December 9, 2011.

Credit: Reuters/Tony Gentile

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BRUSSELS (Reuters) - A determination not to be sidelined is driving EU countries that don't use the euro to support deeper integration in the single currency area, even though they reject joining the club until Europe's sovereign debt crisis is resolved.

Nine of the 10 non-euro-zone EU countries agreed at a summit last week to back the 17 members of the bloc in drafting an intergovernmental plan for fiscal union to try to save the euro after Britain refused to back the goal of EU treaty change.

For all the chaos of the crisis, the nine countries face a choice between tying themselves closer to Germany's economic might or risking the same isolation that Britain has chosen. So far it appears they see their future in stronger European integration rather than going it alone.

"We couldn't just stand to one side on this," said one EU diplomat from a central European country. "The euro zone is our biggest trading partner, our fate is tied to the euro zone."

Poorer, eastern European Union countries that are obliged to eventually join the euro scorn any notion of being put on a slower track in the European Union.

But they are divided between those who seek entry soon, such as Latvia, and the cautious Czech Republic, which has postponed its application indefinitely.

They all worry the development of a core EU could damage their economies, which trade closely with the euro zone and its 330 million consumers.

Hungary sent 54 percent of its exports to the euro zone in the first nine months of this year, while in the Czech Republic, that reached 66 percent, according to EU data.

Eastern Europe is also increasingly exposed to the debt crisis. The Czech crown, the Hungarian forint and the Polish zloty suffered sharp falls in value in November, when traders took a closer look at the impact of the euro zone crisis on their economies.

Even Denmark, which is not obliged to join the euro through an opt-out it negotiated in 1992, says its open economy could be affected by common euro-zone budget and tax rules.

"These are smaller nations that are cautious about big power politics inside the EU and who favored treaty change, but I think what persuaded them was that something needed to be done," said Fredrik Erixon, a director of the Brussels-based European Centre for International Political Economy.

Still, joining a currency area that is fraught with huge debts, a dramatic rise in borrowing costs and the possibility that it may break up altogether is freezing their plans to join.

Poland will probably meet the EU's economic targets set for entering the euro zone by late 2015. But despite increasingly close ties to Germany and a strong desire to join the euro zone, Warsaw says it cannot do so at such an uncertain time.

Hungary's Economy Minister Gyorgy Matolcsy signaled this month another delay from earlier indications for euro entry, saying the country will probably join after 2020. The Czechs dropped their 2010 entry target and have not set a new one.

Despite that, such willingness to rally behind the intergovernmental agreement is a show of force that dampens talk about a division in Europe, said Janis Emmanouilidis at the European Policy Centre think-tank. "It is also a strong signal that most non-EU countries want to abide by their treaty obligation to join the euro zone," he said.

GERMANY NEEDS THEM

Germany and France pushed at the summit for stricter budget measures to be imposed on the euro zone to send a signal to investors that the bloc is on a path to sustainable finances in the hope that may allow the European Central Bank to step up its purchases of distressed euro zone debt to calm markets.

In convincing the former Communist countries and their Baltic neighbors to sign up to the intergovernmental pact, Berlin's role was instrumental because central Europe sees Germany, much more than France, as its ally.

"The Germans said they needed us in and that we have a role to play in integrating Europe eastwards," said an eastern European diplomat from a country outside the euro.

Poland's prime minister, Donald Tusk, has allied himself closely with German Chancellor Angela Merkel in her push for tighter budget rules despite the two countries' bloody history, with the hope of gradually gaining more influence in the EU.

"These countries want to have a voice," said Guntram Wolff, a political analyst at the Brussels-based think tank Bruegel.

"Of course the euro zone is in a very fragile situation, but it doesn't prevent the outsiders from being involved in the discussions," he said.

Several of the non-euro zone countries that backed the intergovernmental plan, including Sweden, Hungary and the Czech Republic, still need parliamentary approval before they can give their full backing to the move.

But diplomats said that is likely to be a formality.

"It's about buying time, getting some breathing space and seeing what this really means, but the commitment to act is there," said another EU diplomat from outside the currency.

The aim is to have the intergovernmental treaty signed by March next year, and have it ratified by all countries, apart from Britain, by June.

(Additional reporting by Luke Baker. Editing by Jeremy Gaunt.)

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Comments (5)
Intriped wrote:
It is because they are also broke and they know that the IMF will bail them out. It’s welfare plain and simple.

Dec 13, 2011 8:12am EST  --  Report as abuse
Intriped wrote:
BTW, Hungary is currently financed by the IMF and is in line for another Tranche.

Dec 13, 2011 8:14am EST  --  Report as abuse
bartreng wrote:
World War 2 was fought for nothing. Soon all of Europe will live in a totalitarian state dominated by Germany.

Dec 13, 2011 8:45am EST  --  Report as abuse
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