SLOVENIA will become the thirteenth European Union country to jettison its national currency when it embraces the euro next January, but Lithuania, which had hoped to follow suit, has been rejected on a legal technicality.

The European Commission said yesterday that Slovenia met all the entry requirements for the single currency. These include inflation, budget deficit and public debt targets.

However, Joaquin Almunia, the Monetary Affairs Commissioner, gave warning that tough decisions still lay ahead.

“The fact that we have considered that Slovenia is fulfilling all the criteria is not inconsistent with the fact that Slovenia has to cope with challenges in the long term,” he said. “I have insisted in my presentation today that Slovenia has to adopt some important structural reforms to increase the resilience of its economy.”

In contrast, Lithuania ran up against a red light after satisfying all the entry criteria except one — inflation. With a rate of 2.7 per cent over the past 12 months, it is marginally over the reference value of 2.6 per cent, which is calculated on the average of the three lowest rates among the 25 European Union members plus 1.5 per cent. Justifying the decision, Señor Almunia, insisted that the Commission had to respect the single currency rules set out in the Maastricht Treaty, adding that he believed the country’s inflation rate would rise to an average of 3.5 per cent for the year. Lithuania's supporters, mindful of how France, Germany and Italy have been breaking the euro’s budget deficit rule for several years, retorted that the criteria had been used too strictly.

The Lithuanian Government said last night that it accepted the decision and will look to join the euro in 2008, along with other hopefuls Malta, Cyprus and Latvia.

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts