Fitch Ratings has revised the Outlook on the Long-Term Foreign Currency ratings of seven EU Accession countries to Positive from Stable. Among the listed countries is Cyprus, whose rating was raised to A+.
The other countries affected Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. Fitch expects the incoming members of the EU to have sovereign credit ratings two to three notches above their current level when they eventually adopt the euro, given that full membership of the euro area reduces the risks to sovereign creditworthiness emanating from balance of payments imbalances and external shocks.
Fitch also considers that where Exchange Rate Mechanism (ERM II) participation indicates a credible commitment to meet the Maastricht criteria and join the euro area within a few years, it can be a rating strength.
The earliest any new state could enter the euro area is January 2007, and the process of convergence to the Maastricht criteria, especially meeting the three percent of gross domestic product (GDP) limit on government budget deficits, could delay entry until the end of the decade.
Moreover, the process of convergence could be made more difficult by large capital inflows, placing an even greater onus on consistent and credible macroeconomic policies that support convergence and reduce the potential risks posed by free mobility of capital. Fitch therefore judges that it would be premature and inappropriate to wholly discount these risks and raise the sovereign credit ratings of the new EU member states to their euro area levels at this time.
Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta and Slovenia could join the EU in May or June 2004 or January 2005. Poland and Slovakia may still decide to join them. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
