Hungary could benefit greatly from a well-timed entry into ERM II, Reiner Martin, executive director of the Research, Statistics and Economic Education Department at the Slovak National Bank, told Portfolio in an interview. Martin is also an ECB official. The credibility of the introduction plan and the fiscal path will be the key factors, he said.
Slovakia adopted the euro in 2009, moving from a floating exchange rate into ERM II. Martin said euro area membership lowered financing costs for the state, households and firms. It also brought low or expected inflation and access to ECB crisis tools. Expected gains in trade integration and foreign direct investment did not materialise visibly, because Slovakia was already highly open.
Timing and fiscal credibility
For Hungary, the scenario under discussion envisages ERM II entry in 2029 and euro adoption in 2032. Martin said these dates are broadly consistent. Fiscal criteria would depend on full-year data for 2029 and 2030.
Martin said the euro adoption target of 1 January 2032 would make mid-2031 the expected point for assessing adoption. ERM II requires at least two years without severe exchange rate tensions. He said it is hard to give a clear answer from outside. Hungary should wait until the adoption horizon and a consistent fiscal path are clear, he said.
Limits of the exchange rate
Martin said the exchange rate cannot solve productivity problems. Euro area membership, however, can create a more supportive financing environment, he said. Joining ERM II is appropriate once the planned euro adoption path is visibly credible to markets and European institutions.
Related: Hungary's central bank says euro peg entry could come quickly · Bruegel says Hungary needs a real-economy test before euro entry
Source: Slovak National Bank
