On the road to euroland

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Rating agency Fitch has released its latest assessment of when the 10 countries that joined the EU in 2004 are likely to join the European exchange rate mechanism (ERM) II and adopt the euro. Its findings are not particularly encouraging.

"In some respects there has been a 'de-convergence' over the past 12 months in that a majority of countries met fewer of the Maastricht criteria in mid-2005 than in mid-2004," says Edward Parker, senior director in Fitch's sovereign group.

Estonia, Lithuania and Slovenia are leading the way towards the single currency, and are still expected to adopt the euro in January 2007.

Cyprus, Latvia and Malta have also made good progress, having joined the ERM II in April. They are committed to adopting the euro in 2008. Although Fitch is confident about Cyprus and Malta's ability to meet this goal, it cautions that inflationary pressures in Latvia might mean that its adoption of the euro is postponed from 2008 to 2009.

Of the larger central European economies, the Slovak Republic is best positioned for speedy adoption of the euro. Fitch sees its convergence programme and prospective 2009 adoption date as credible. Poland has also made steady progress over the past year in inflation, bond yields and public finances, and might remain on target for 2009.

The Czech Republic and Hungary will be the last of the new EU members to join the single currency. Fitch gives the Czech Republic only a 50-50 chance of attaining its 2010 target, because of difficult public finance reforms ahead. Hungary is also aiming for 2009, and although Fitch believes that 2010 might be possible, it also warns that slippage on fiscal targets makes 2011 a more realistic outcome.