Italy's presidency of the European Union bears an enormous responsibility, namely reinvigorating enlargement as the key aspect of the new EU. A good place to start would be to push for a different attitude on accession countries' adoption of the Euro. Indeed, EU institutions' current paternalistic stance towards the accession countries threatens to create a two-tier Europe that will complicate the task of integration.

The accession countries have upheld their end of the bargain, achieving a degree of trade integration with EU countries that is even higher than many current members. Three of them--Estonia, Latvia, and Lithuania--have currency boards or a fixed exchange rate with the Euro, as does Bulgaria, which is expected to enter the EU in 2007. The others have declared for several years their interest in adopting the Euro early on, in some cases unilaterally, even before entry into the EU--a position openly supported by the National Bank of Poland, and less forcefully by the National Bank of Hungary and the Czech National Bank.

But, despite their progress in bringing their inflation and interest rates closer to EU levels, many candidate countries fear that with the full opening up to capital flows--a requirement of accession--they will be exposed to the risk of sudden stops in capital flows and currency crises. They have learned the lesson from Latin America and Asia in the 1990's. Adopting the Euro would give them a great way to escape such risks and focus on creating real growth in their economies.

But the response from EU institutions, namely the European Central Bank and the European Commission, has been negative: candidate countries were told that they first must spend at least two years in the European Exchange Rate Mechanism (ERM II), where Euro aspirants are expected to prove their policy mettle. Initially, even currency boards were considered unacceptable, although, as is often the case in Europe, exceptions were made: countries with currency boards could keep them after entry into the EU.

The opposition of the ECB and the Commission to rapid Euro adoption lacks strong foundations. What should matter for the EU is that the policies of any member state are not harmful to other members.

As Leszek Balcerowicz, the Governor of the National Bank of Poland, argues, adoption of the Euro by candidate countries will certainly create benefits for candidate countries, while in the worst case being neutral for current members. Indeed, the combined size of the candidate countries' economies is so small--around 6% of the enlarged EU's GDP--that they cannot possibly exert any significant effect on the Euro.

But continuing opposition by EU institutions has led most candidate countries to abandon the idea of adopting the Euro unilaterally or as quickly as possible after entering the Union. Unfortunately, the stubbornness of the ECB and the European Commission is now providing ammunition to populist governments in accession countries that are counting on currency appreciation to escape the fiscal discipline that adopting the Euro would imply. However, such fiscal expansion would probably disqualify a country from entering the Euro any time soon.

Indeed, the accession countries that have not implemented a currency board have seen their budget deficits surge--exceeding 9% of GDP in Hungary in 2002 and more than 5% in Poland, the Czech Republic, and Slovakia--while large capital inflows have kept their currencies under strong pressure to appreciate. This trend exposes candidate countries' real economies to precisely the risk of a capital flow reversal and currency crisis that early Euro adoption was meant to eliminate.

It is ironic that the candidate countries are being lectured to by officials at the ECB and the European Commission on the trade-off between nominal and real convergence. The objective of growth for the accession countries is apparently the sole imperative in Brussels; macroeconomic stability can wait. Large budget deficits support growth, but inflation evidently is not a problem.

If this line of thought sounds familiar, perhaps it is because it (more or less) recapitulates the foundations of the unsustainable planning system with which the accession countries broke at the beginning of the 1990's. It was, of course, the embrace of rational, market-driven economic policies by the former communist nations that has brought them to the brink of EU membership. So European institutions should abandon their paternalistic approach and take seriously the concerns of accession countries' central bankers about the risks of maintaining their own currencies for a long period during which their economies have to open up completely to capital flows.

As it is, the ECB and the European Commission are de facto supporting the positions of populist governments in Eastern Europe that are already spending the funds they hope to get in the future from the EU. It is high time that EU institutions address more seriously the challenges and opportunities posed by enlargement. They can begin by viewing accession countries' early adoption of the Euro more favorably, both for countries with a currency board and for those with floating exchange rates.