Three accession countries peg currencies to the euro

Related tags Euro European union

Estonia, Slovenia and Lithuania have all pegged their currencies to
the euro as a first step towards adopting the euro in 2007 - a move
that is expected to cause many food and beverage businesses to keep
tighter reins on their pricing policies over the next two years.

The governments of each of the countries will now have to ensure monetary control in effort to avoid currencies falling or rising by more than 15 per cent against the euro. In turn this will mean that industry as a whole will have to ensure that costs remain relatively stable.

Estonian confectionery manufacturer Kalev said in a statement that it believed that pegging the Estonian Kroon to the euro would have little immediate affect, but added that it would have to be more attentive to its pricing policy over the course of the next two years.

The move pegs the Lithuanian litas, the Estonian Kroon and the Slovenian tolar at current rates, which were fixed between the European Union, the European Central Bank and the respective national banks for each country. The Estonian Kroon has been pegged at 15.64 to 1 euro, the Lithuanian litas at 3.45 to 1 euro and the Slovenian tolar at 239.64 to 1 euro.

Following the announcement the European Union emphasised that each countries' fiscal policy would play a key role to the eventual adoption of the euro. It stressed the need to prevent demand-induced inflation and said that fiscal measures would have to be firmly put in place in order to contain domestic credit growth.

The tone of the European authorities comes at a time when many of the leading EU countries are themselves struggling to keep budget deficits within the required 3 per cent of GDP. Currently both Germany and France - two of the largest EU economies - have exceeded this figure and both Portugal and Italy are expected to exceed this limit later this year.

Observers believe that this may indicate a certain amount of leeway for other accession countries wanting to join the Euro, as the rules governing the budgetary constraints will probably have to be rethought this year. For the food industries in the ten new member states - six of which currently have trade deficits exceeding 3 per cent of GDP - this suggest that future negotiations on currency pegging could have more flexibility.

Related topics Processing & packaging

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