Slovakia won EU and ECB backing to adopt euro

(AFP)

 

Slovakia won initial EU backing on Wednesday to adopt the euro, setting the ex-communist country on the path to become the 16th Eurozone country in January 2009.

In separate reports, the European Commission and the European Central Bank found that Slovakia met tough economic criteria euro hopefuls must fulfill to join the single currency club, but warned inflation had to be contained.

"Slovakia has achieved a high degree of sustainable economic convergence and is ready to adopt the euro on January 1, 2009," EU Economic and Monetary Affairs Commissioner Joaquin Almunia said in a statement.

EU finance ministers are due to rubberstamp Slovakia's adoption of the euro in June, followed by leaders of the 27-nation bloc later in the month. Finance ministers are then due to give the final official approval in July.

Before the red carpet to Eurozone membership is laid out, candidates have to meet economic targets covering public finances, inflation, exchange and interest rates.

In Slovakia's case, the inflation criteria was the main obstacle to its ambition of adopting the euro at the start of 2009.

Although Slovakia was deemed to have inflation sufficiently under control, Almunia urged Bratislava to ensure it remained so and called on Slovak authorities to maintain sound public finances.

"To ensure that the adoption of the euro is a success, Slovakia must pursue its efforts to maintain a low-inflation environment, be more ambitious with regard to budgetary consolidation and strengthen its competitiveness position," he said.

Likewise, citing tight labour market conditions and rising energy prices, the ECB said: "There are considerable concerns regarding the sustainability of inflation convergence in Slovakia."

Slovaks are divided about being the first Central European country to adopt the euro with many of the country's nearly 5.5 million strong population fearful the switch could actually drive up inflation.

The left-dominated government of Prime Minister Robert Fico has made euro adoption a flagship policy as part of its goal of breaking down barriers with the West.

"I expect prices will rise by around 40 per cent within two years. You only have to look at their levels in Austria and Germany," complained euro adoption opponent, Josef Hengentler, at a run down fruit and vegetable market in the Bratislava suburb of Nove Mesto.

The 66-year-old Bratislava food factory worker's wage is in line with the national average at around 19,000-20,000 koruna (591-622 euros) a month. "I am a fan of Fico but I think this is a mistake," he added.

While the adoption of euro banknotes and coins has gone smoothly in all Eurozone countries, successive changeovers have frequently been accompanied by complaints from consumers that retailers were using the opportunity to round up prices.

Almunia said that Bratislava must "now speed up its practical preparations to ensure that the changeover takes place smoothly, as it did in Cyprus and Malta in January 2008."

Among the EU countries that have joined the 27-nation bloc since 2004, Cyprus, Malta and Slovenia have already adopted the euro, which will mark its 10th anniversary in January 2009.

Slovakia's entry into the eurozone is likely to end the bloc's expansion for several years because no other candidate country has set a firm target date for joining the club.

 

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