Call for struggling EU nations to adopt euro

Struggling European Union countries in central and eastern Europe should switch to the euro even without full eurozone membership, according to a confidential report.

The report said the 16-member eurozone could relax entry rules so the states could join as quasi-members without European Central Bank seats, a prospect analysts said would be hard pressed to find support at the ECB or in the EU's executive Commission.

"For countries in the EU, euroisation offers the largest benefits in terms of resolving the foreign currency debt overhang [accumulation[, removing uncertainty and restoring confidence," Financial Times reported yesterday citing the report, which was written around a month ago.

"Without euroisation, addressing the foreign debt currency overhang would require massive domestic retrenchment in some countries, against growing political resistance."

The report had been prepared to support an unsuccessful push by the IMF, the World Bank and the European Bank for Reconstruction and Development to support a region-wide anti-crisis strategy for the European Union and eastern Europe. The paper did not cite which countries had been specified as becoming eurozone joiners quickly.

Latvia, Lithuania, Estonia and Bulgaria have pegged their currencies to the euro and market speculation has focussed on whether they will devalue the pegs or hold them steady.

All have said they plan to keep their pegs, worried devaluing would strain those who have borrowed in Swiss francs and euros by significantly pushing up their costs of repaying those loans, and also put banks under pressure.

Euro zone entry could remove that threat but could make recovery harder because exports would be more expensive.