IMF Urges Eastern European Countries to Go for the Euro

imf-building-1The International Monetary Fund issued today a statement by which it encouraged the Eastern European countries to adopt Euro as thei currency, in order to avoid the further effects of the financial crisis. An article published in Financial Times today mentioned that:

“For countries in the EU, euro­isation offers the largest benefits in terms of resolving the foreign currency debt overhang [accumulation], removing uncertainty and restoring confidence. Without euroisation, addressing the foreign debt currency overhang would require massive domestic retrenchment in some countries, against growing political resistance.”

The IMF reccomended European Central Bank to relax the rules of the euro adoption of these countries, most of which are already members of the European Union.

After these statements, it became clear that the IMF looks at strengthening measures for these economies beyond the traditional financial aid. There are many European and US companies investing in Eastern Europe and they are for sure more than happy to see thse conversion barrirs lifted. This euro adoption would be beneficial not only for the Eastern European countries, but also for the investors wishing to pour money into these emerging markets, whilst retaining some guarantees.

Even though global leaders hailed last week’s G20 summit as a success, eastern Europe’s challenges remain. Amid deepening recession, Ukraine and Latvia, two states already in IMF programmes, have in recent days balked at approving IMF-mandated reforms. A third, Hungary, is struggling to create a government capable of implementing reforms.

The IMF report was compiled to support a campaign by the fund, the World Bank and the European Bank for Reconstruction and Development to persuade the EU and eastern European states to back a region-wide anti-crisis strategy, including a regional rescue fund. The campaign failed amid widespread opposition from both west and east European states.

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