Candidates for the euro vulnerable to speculators

George Soros, the famous investor, responsible for the fact that Great Britain withdrew from the European exchange rate mechanism, said that the currency in Eastern Europe are "vulnerable", as prepared to be tied to the Euro.

Countries must adopt and maintain corridors Mechanism currency exchange rates as soon as possible, before joining the euro, said George Soros to journalists at the annual meeting of the European Bank for Reconstruction and Development in London. Ten new countries join the European Union on May 1, 2004. and some of them are planning to enter into a mechanism of exchange rates in the near future, so that they can adopt the Euro in 2006.

George Soros in 1992. made more than $ 1 billion by selling the pound because Britain tried to prevent the fall of the rate below the boundaries set by the mechanism of exchange rates. Hedge funds may try to repeat his success, as well as Estonia, Latvia, Lithuania and Slovenia aspire to join the euro, after 10 countries join the European Union.

"There is a risk of breaches boundaries currency corridor," said Soros. "This is a rather precarious situation because of the openness of the currencies and the relatively small reserves, available to governments to protect the exchange rate."

Lithuania, Latvia, Estonia and Slovenia are expected to be among the first to tie their currencies to the exchange-rate mechanism after the accession to the European Union, possibly as early as late 2004.

Lithuania do not have to worry
"We are not concerned about the speculation against the currency because the currency in Lithuania is already pegged to the euro and not floating freely," said Deputy Minister of Economy of Lithuania Neridzhas Eydakevichus at a meeting of the EBRD. Latvian and Estonian officials have also said previously that they do not expect problems with the accession and hope to have the Euro, at the latest by 2007.

Lithuania better all ready to join the mechanism of exchange rates and could be a first, said a representative of the International Monetary Fund Zuzana Briksiova.

The Minister of Finance of Hungary Tibor Draskoviks said that the country will seek to adopt the Euro in 2009 or 2010 and to postpone adoption of a mechanism of exchange rates prior to that time. Hungary meanwhile, will try to convince investors that it will help reduce its budget deficit to a maximum level of the European Union, said Draskoviks.

"Accession to the mechanism of exchange rates to ensure stability in exchange rates, particularly for countries whose policies are" not built "in the accepted framework for the EU," said George Soros. "Hungary has suffered from currency instability," he added.

EU officials said that new members must be able to fulfill the conditions required for the adoption of the Euro, before they join the exchange-rate mechanism, but should not try to restructure their economies, even after joining the Mechanism. Otherwise, this could lead the attack of speculators, they said.

No hurry
"Hungary was advised" not to hurry, better come when the conditions allow, than to join very quickly, "said Secretary of State, Ministry of Finance of Hungary Elemer Tertak in a television interview at the EBRD meeting. "Accession to the mechanism of exchange rates, of course, would have provoked some speculation."

Poland and the Czech Republic, is unlikely to be able to adopt the euro before 2010. Because of their higher budget deficits, said in the "Standard & Poor's" in this month.

Countries participating in the mechanism of exchange rates may allow their currencies to float in the range of plus or minus 15 percentage points against the euro.

Minimum stay in the mechanism of exchange rates, according to the laws of the European Union two years, but several countries have tied their currencies to the euro, including Estonia, will be allowed to move faster because they have already demonstrated the stability of its currency against the Euro.

John Major and Norman Lemont, British Prime Minister and the Chancellor at a time when Britain emerged from the mechanism of exchange rates on 16 September 1992. On the day called "Black environment, Lemont demanded from the Bank of England to raise interest rates to the level of 10% to 15% in the unsuccessful attempt to support the pound. "Quantum Fund" George Soros benefited from this situation, as the pound fell against the German mark and other currencies.

73-year-old George Soros, who now spends much of his time to charitable projects, said he would not speculate on currencies of Eastern Europe.

Forex Magazine
based on www.bloomberg.com