A rushed adoption of the euro that ignores differences in the levels of economic development between Hungary and the euro zone could sacrifice Hungary’s growth and even pose risks to its stability, a member of the central bank’s Monetary Council said on Wednesday.
Countries with uneven levels of economic development could be hurt by not having the option to chart their own monetary policy course due to using a single currency, Péter Gottfried told an online roundtable discussion organised by the scientific periodical Financial and Economic Review and the Hungarian Economic Association. A decision by the European Central Bank could prove too lax for one country while being too stringent for another, he said.
Contrary to expectations, the introduction of the euro has not accelerated convergence within the euro zone, Gottfried said, adding that certain members had even fallen behind in terms of development.
While countries like Germany, Austria and the Netherlands have benefitted from the use of the euro, southern euro-zone countries, for instance, are stagnating, he said. Also, countries like Sweden, Denmark, Poland, the Czech Republic, and in some respects, even Hungary have managed narrow the gap with the more developed EU member states without the euro, he added.
Gottfried said that for Hungary to introduce the single currency it may not be enough for it to meet the criteria of the country’s GDP per capita reaching 85-90 percent of the EU’s average. Hungary also has to make up ground in terms of competitiveness, he said.
Because of the interdependence between the euro zone and the Hungarian economy, Hungary has a vested interest in the success of the euro, even though it is not the official currency, he said, noting that Hungary does 85 percent of its foreign trade with the euro zone.
He also said that the introduction of the euro had been unsuccessful in halting the decline of the EU’s economic power on the global stage. However, the system has “stood the test of crises”, he said.
The central banker also suggested that any political benefits that may accrue from a Hungarian accession to the euro zone would not surpass those that the country secured the moment it made a political commitment to the European Union and NATO.
Gottfried said it would be worth waiting to implement reforms to improve Hungary’s competitiveness, put growth on a sustainable footing and reduce its public debt permanently before adopting the single currency. But if the determination to see these policies through were lacking, then it may be worth changing priorities and, in the hope of a favorable development in yields, bringing forward the euro’s introduction.
Featured photo illustration via Pixabay