April 12 (SeeNews) - The adoption of the euro in countries in central and eastern Europe (CEE) would have neutral to positive effect on sovereign creditworthiness, as Croatia and Bulgaria stand to gain most, Fitch Ratings said.
The CEE countries' foreign currency ratings are likely to be upgraded by up to one notch, or two in exceptional cases, in case they adopt the single currency, the ratings agency said in a report late on Monday. However, euro membership remains a remote prospect as it has disappeared from the political agenda of those countries, the agency added.
The countries gaining most from euro adoption would be those with weak external finances, as they would benefit from the reserve currency status of the euro, high level of loans in euros to the private and government sectors which would benefit from the neutralisation of exchange rate risk on the economy, and a fixed exchange rate.
A fairly low level of government debt and a flexible economy would support adjustment to shocks and would be strong assets within the European Monetary Union (EMU).
The currencies of Croatia and Bulgaria are already tied to the euro, so they would not lose the benefits of independent monetary policy, according to Fitch.
The two economies are highly euroised, especially Croatia where euro loans to the private and government sectors are equivalent to 46% and 57% of GDP, respectively. Euro adoption would also strengthen weak external finances, it noted. Key challenges within the EMU would include weak economic flexibility, as evidenced by high unemployment rates - 16.9% in Croatia and 11.5% in Bulgaria - and high government debt in Croatia - 86% of GDP in 2015, Fitch added.
Romania, however, would lose the benefits of independent monetary policy. Euroisation in the country is also more limited than in Bulgaria and Croatia. However, given the country's sizeable net external debt, the adoption of a reserve currency would strengthen its external finances.
Slovenia, the only other EU member in Southeast Europe, adopted the euro in 2007.