Euro will boost Eastern Europe

The impact of currencies on emerging countries in Eastern Europe are being watched by property investors keen to exploit economies before they enter the Euro zone when property prices are expected to boom.

Bulgaria and Romania are likely to join the Euro zone in 2013-2014, according to the analytical unit of UniCredit Group and Slovakia has been given the green light to adopt the Euro in January 2009.

But there is also inflation to take into account, according to the group's report The Euro goes Eastwards. Low inflation is desirable if the adoption of the Euro is to be a success.

Once all aspirants from Central and Eastern Europe adopt the single European currency, the Euro zone will expand by a third. Currently, the Euro is in use by 320 million Europeans in 15 countries.

'The prospect for Euro adoption is a main anchor for most of the countries from the 2004 and 2007 EU enlargement waves,' said Debora Revoltella, UniCredit Group chief economist for Central and Eastern Europe.

'A main challenge presently is the inflation criterion because of the price pressure observed in almost the entire CEE region,' she added.

According to UniCredit Group, Slovakia stands 90 per cent chance of joining the Euro zone as of January 1 2009, as it got the greenlight for compliance with Maastricht criteria in the convergence reports from the European Central Bank and the European Commission.

Poland, Hungary and the Czech Republic, which are yet to set an official date for Euro zone accession, are likely to adopt the Euro in 2012-2013. For the three Baltic states, whose currencies are pegged to the Euro, target Euro zone accession in 2011-2012.

But there is also speculation among leading investors that rising inflation, strong growth and the return of an appetite for risk are pumping up Eastern European currencies so that some governments may revalue.

Slovakia, Ukraine and Russia may all revalue their currencies this year to keep price pressures under control. A stronger currency would help reduce inflation by lowering the costs of imported goods. Rising food prices, in particular, are driving inflation.

Adopting the Euro will impact beneficially on the property markets of those countries involved, according to Alistair Constance of Mercury FX. 'In the past, when a country has the joined the Euro, the property prices have jumped. Consequently, there should now be a property boom in Slovakia next year.'

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