S&P: Delays may constrain new EU sovereigns

Standard & Poor's said in a report that the strict enforcement of the Maastricht criterion on inflation looks set to dampen the prospects for Eurozone enlargement, potentially constraining associated improvements in creditworthiness.

The report, "EU Class Of 2004 Faces Tough Eurozone Entry Tests," outlines the agency's views on the Eurozone accession prospects and likely membership timetable for the 10 sovereigns that joined the EU in 2004, as well as for Bulgaria and Romania, which are expected to join the EU by 2008 at the latest.

"In several countries that had been expected to join EMU relatively early, especially the three Baltic states of Estonia, Latvia and Lithuania, efforts to meet the Maastricht inflation target have slipped on rising energy prices and strong domestic demand," said S&P credit analyst Kai Stukenbrock.

"Moreover, in other countries for which membership was already a less immediate prospect, such as Hungary and Poland, widening fiscal deficits or policy stagnation in the context of turbulent political environments is threatening to push entry dates still further into the future."

S&P added that the decision to apply the inflation criterion so strictly, even for a country that is performing well on the fiscal side and has successfully pegged its domestic currency to the euro since February 2002, clouds the prospects for all three Baltic states, as well as for any other fast-growing catch-up economies looking to join further down the line, such as Bulgaria and Romania.

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