MONTENEGRO: Montenegro ahead of many other EU members, with use of euro

Montenegro may have now signed the Stabilisation and Association Agreement with the European Union as the first step to EU membership, but the country is already ahead of many current members in its use of the euro currency. For most European Union states, adopting the euro currency is the last, joyful step in a long and difficult journey through rigid membership rules and regulations. For Montenegro, which signed its first accord with the EU on Monday (October 15) and will need years to become a member, the euro has been a reality since 2002, when it adopted the currency unilaterally. The euro sign is everywhere in the small Adriatic republic, making it feel like any other eurozone state. For the property industry, it's a big advantage. "Having the euro as currency in Montenegro is helping us. Besides, according to experiences of my clients, who are coming here either to buy real estate or as a tourists, they say it suits them very much that the euro is the currency in Montenegro," said Sanja Todorovic real estate agent from Kotor. Economists say that after teething problems in the first two years, the use of the euro motivated the government to apply sound fiscal policies and improved Montenegro's image, directly contributing to a boom in tourism and real estate. "It just makes life so much easier and it's very stable. And as a country, anyway, it's one of the most beautiful countries in Europe," said Briton Marie-Louise Morrison, leafing through property catalogues in the medieval town of Kotor. The picture was very different seven years ago. In late 1999, the Yugoslav federation of Serbia and Montenegro faced ruin after a decade of war and 78 days of NATO bombing to force Serb forces out of the breakaway province of Kosovo. Montenegro's government -- already not in control of monetary policy, which was decided by Serbia -- weighed its options and decided to adopt the German mark, the currency of choice in a region ravaged by hyperinflation. Montenegrin independent economist Mila Kasalica said the country went into the experiment almost blind. Commerzbank had to get approval from the Bundesbank to take the cash out of Germany and then the government brought it into the country, on the plane. "Montenegro has made a political decision to introduce the euro as the state currency, a decision which has been supported by the European Union's political elite. It is now a big question as to why the same political elite are opening this issue," Kasalica said. There was a period of two months when the Yugoslav dinar and the German mark were in parallel use, with the mark becoming sole legal tender and reserve currency on January 1, 2000. In 2002, just as in Germany and other EU states changing currency, the euro followed also in Montenegro. Some 474 million euros went into circulation in the country of 650,000 people by the time the changeover was completed. Its adoption widened the emotional gap with Serbia, and the union was dissolved in 2006, when Montenegro voted to go it alone and became the world's newest independent state. Zorica Kalezic, senior economist at the Central Bank of Montenegro, said the initial adoption of the mark was a risky move. "It should be underlined that we have taken the euro out of purely economic reasons, for reaching macroeconomic stability. In that sense we really might represent a precedent if compared with other countries, but it doesn't give us, in any form, the right to jump over any step in moving towards the European Union," Kalezic said. In the beginning Montenegro was a long way from the EU's Maastricht criteria, the targets a country must meet to be allowed to adopt the euro. But using the euro, and thus reducing the foreign exchange risk, helped, especially with inflation. In terms of the money supply, Montenegro's big current account deficit remained an issue, but because of the huge foreign direct investment inflows -- the highest per capita in Europe last year -- the country does not expect a crisis.

ITN Source | October 16, 2007

Tags:. .initial. .apply. .weighed. .province. .experiment