Slovenia on Track to Adopt Euro Currency

Slovenian Prime Minister Janez Jansa, center, Slovenian Finance Minister Andrej Bajuk, right, and the Governor of the Bank of Slovenia Mitja Gaspari, left, address to media in the Governmental Press room in Ljubljana, Slovenia, Tuesday, May, 16, 2006. The European Commission announced today in its report that Slovenia is ready to adopt the Euro on Jan. 1, 2007. The thumbs up pave the way for Slovenia to become the first among the countries that joined the EU in May 2004 to adopt the Euro. (AP Photo/Denis Sarkic) (Denis Sarkic - AP)

STRASBOURG, France -- The euro area is likely to swell to 13 nations next year after the European Commission said Tuesday that Slovenia could become the first new user of the common currency since it was launched four years ago.

The euro rapidly became the world's second major currency after the dollar, but is still not used in all 25 EU member states.

That will start changing in the coming years, as seven other new EU members queue up to join _ but only after meeting strict economic standards that some of the initial euro nations managed to skip.

Widening the euro area bolsters the currency's credibility in the eyes of the world, said Peter Morici, a professor of international business at the University of Maryland.

Filling in the "holes in the map" makes the euro more legitimate as a reserve currency, he said. "As the euro expands into Eastern Europe, its stability and credibility will be improved."

But for EU officials, that legitimacy rests on a strict set of rules governing inflation and public debt that are designed to keep the euro economy stable _ even though EU governments bent the rules in 2001 to allow Italy, Belgium and Greece to sign up for the euro when their public debt was well above the legal limits.

Lithuania's high inflation scuppered its chances to join next year, EU Economic and Monetary Affairs Commissioner Joaquin Almunia said in a statement Tuesday. "Lithuania meets all the convergence criteria except the one on inflation," he said.

Lithuanian officials acted angrily to the EU rebuff which was based on figures showing that the average inflation rate in Lithuania during the 12 months to March 2006 was 2.7 percent, just above a 2.6 percent guideline.

Almunia said he expected Lithuania's inflation to rise to 3.5 percent on average this year. Natural gas prices rose by around 40 percent in January after the expiration of a long-term agreement with a major gas exporter.

The commission's report said the country was yet to feel the main impact of this energy price hike. "Buoyant domestic demand, energy price increases and increases in indirect taxes represent risk factors for inflation," it warned, saying the country had to take care to keep wage growth in line with productivity.

Lithuania's EU Commissioner Dalia Grybauskaite _ who voted against the decision to reject the bid _ said the rules had been applied dogmatically.

Jonas Lionginas, chairman of the Lithuanian parliament's finance and budget committee, said the EU decision showed "disrespect" toward the country. "It seems now that declarations of equality of all member states are not worth anything," he said.