Tuesday, December 13, 2011

Analysis: Isolation fears push outsiders to embrace euro zone

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(...)More.

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