EU: Slovenia Ready for Euro, But Baltics Not

Slovenia, Estonia and Lithuania are aiming to join the euro zone at the beginning of next year while Latvia wants to become a member in 2008 although the central bank has raised doubts that will be possible.

However, so far the tiny Alpine country is the only one that makes the grade already by meeting tough macroeconomic and fiscal criteria to belong to the euro zone.

"Slovenia is in the better position" compared to other euro hopefuls, said EU economic affairs commissioner Joaquin Almunia. "So far -- if the assessment for joining the euro zone were to take place today -- Slovenia would fulfill the criteria."

Tempering his enthusiasm, he said however that the situation would have to be monitored as the assessment is made in the coming months because there were "some risks" which he did not specify.

Baltics need to lower inflation

Almunia was less upbeat about the euro-ambitions of the three Baltic countries because they needed to bring inflation lower in order to join.

Candidates for joining the euro are required to meet a series of tough macroeconomic criteria including not having an inflation rate 1.5 percentage points greater than the average of the rates of three EU countries with the lowest inflation rates.

However, the economies of the Baltic three are growing so quickly that they are having a hard time to keep inflation down, Almunia said.

High marks for public finances

Despite concerns about inflation, the European Commission gave high marks to the public finances, another important criteria for joining the euro, of Estonia, Latvia and Slovenia.

In a report on how well their finances stack up against euro zone norms, the European Commission praised Estonia as a model for older members and said that Latvia and Slovenia could be more ambitious.

"With a budget on balance, the lowest debt in the EU and low age-related expenditure risks, Estonia can be hailed as an example of good fiscal policy," the commission said in a statement.

Older problem children

The commission has been struggling for years to get older members such as France and Germany to respect the euro zone's much-maligned fiscal rules.

Those countries have found it particularly difficult to meet a rule requiring public deficits to be kept to less than 3 percent of gross domestic product.

Although it did not have balanced accounts like Estonia, Slovenia was also given high marks for its financial management which is expected to result in a fall in the country's public deficit in the coming years.

Slovenia had told the commission that it expected its public deficit to ease from 1.75 percent last year to 1.0 percent by 2008.

However, the commission recommended that Ljubljana make further efforts to improve its finances before the full impact of an ageing population hits the pension system.

On Latvia's public accounts, Brussels declared that Riga's finances were in "a comfortable situation overall."

However, it said Latvia's efforts to improve its finances were too "timid" in the light of expectations for strong economic growth in coming years.