New European Union membership will be disjointed, says S&P

By Reshmi Basu

New York, April 14 - A variety of public finance performances and disjointed prospects for the adoption of the euro will be the key in determining government ratings among the 10 new members joining the European Union on May 1, said Standard & Poor's analyst Konrad Reuss during a teleconference Wednesday.

The adoption of the euro will occur in three distinct stages, predicted Reuss, managing director for sovereign ratings in Europe, Middle East and Africa.

The Republic of Estonia, Latvia, Lithuania and the Republic of Slovenia are expected to be part of the Eurozone by 2008.

The second phrase will be made up of the Republic of Hungary, the Slovak Republic, the Republic of Malta and the Republic of Cyprus, which are expected to join by 2009.

At the earliest, the Republic of Poland and the Czech Republic are predicted to adopt the euro by 2010.

"Weak fiscal performance will prevent earlier EMU entry of the accession countries," said Standard & Poor's credit analyst Beatriz Merino.

This could worsen the already large expenditure implications of economic restructuring and the upfront costs of social security reforms needed to confront the challenges of shrinking populations, said Merino.

Hence, membership into the European Union will not lead to convergence of economic growth with the existing members.

The ratings trajectory of the acceding states beyond European Union is likely to be far from uniform, the analysts said.

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