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Commission assesses readiness of 10 EU countries to adopt the euro; proposes Slovakia joins euro area in 2009

The European Commission today concluded that Slovakia meets the criteria for adopting the euro and made a proposal to the Council to this effect. The regular Convergence Report on euro readiness, adopted by the Commission, shows that the other nine countries with a so-called ‘derogation’ have made progress on the road to the single currency, but do not yet meet all the conditions for euro adoption. The Council of EU finance ministers (ECOFIN) will take the final decision on the adoption of the euro in Slovakia in July, after Parliament has given its opinion and EU heads of state and government have discussed the subject at their summit meeting in June. “Slovakia has achieved a high degree of sustainable economic convergence and is ready to adopt the euro on 1 January 2009. However, 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. It must also now speed up its practical preparations to ensure that the changeover takes place smoothly, as it did in Cyprus and Malta in January 2008,” said Joaquín Almunia, EU Commissioner for Economic and Monetary Affairs. He added: “The report issued today shows that the other Member States ‘with a derogation’ are making good progress towards euro adoption, though at different paces. I encourage all Member States to pursue and intensify their efforts, as this is clearly in their long-term interest.” Today the Commission adopted its regular Convergence Report assessing progress made by the ten EU countries ‘with a derogation’ (Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Romania, Slovakia and Sweden) towards adoption of the euro. EU countries that do not meet the Maastricht convergence criteria for the euro set out in Article 121(1) of the EU Treaty are said to have a ‘derogation'[1]. The criteria consist of four stability-oriented economic conditions regarding the government budgetary position, price stability, exchange rate stability and convergence of long-term interest rates. The national legislation on monetary affairs must also be in line with the EU Treaty. According to the Treaty, the Commission reports every two years on the subject. Member States concerned can request that their readiness be assessed at any other moment. Slovakia recently made such a request although the Convergence Report was already being prepared.

Assessment of Slovakia Inflation – The 12-month average inflation in March[2] in Slovakia was 2.2%, well below the reference value calculated at 3.2% for the same month. This is considered a sufficient margin to allay concerns about rising inflation. However, Slovakia will need to remain vigilant to keep inflation at a low level, notably by maintaining wage discipline, adopting a more ambitious fiscal stance and further advancing structural reforms to improve the functioning of product markets.

Public finances – The deficit and debt are well within the acceptable limits for the convergence assessment: the deficit was 2.2% of GDP in 2007 and is expected to come down to 2.0% of GDP this year, in the Commission’s spring forecasts[3]. The general government debt stood at 29.4% of GDP in 2007. The Commission considers that the excessive deficit has been corrected in a credible and sustainable way and recommends that the ECOFIN Council closes the excessive deficit procedure for Slovakia[4]. If this is done, Slovakia will fulfil the criterion on the government budgetary situation.

Interest rates – Slovakia’s average long-term interest rate over the year to February 2008 was 4.5%, below the reference value of 6.5%. It has been below the reference value since EU accession in 2004. The spreads vis-a-vis euro area long-term benchmark bonds have also been declining markedly since 2002, which testifies to the low residual country risk priced in by the markets.

Exchange rate – As for the exchange rate criterion, the Slovak koruna has participated in ERM II since 28 November 2005. Although the exchange rate has risen quite strongly against the central rate, the Commission finds that the reasons for the appreciation are sound and that the koruna has not experienced severe tensions. Finally, Slovakia’s legislation in the monetary field is also found to be compatible with the EU legislation. Based on this assessment, and on the European Central Bank’s own Convergence report, the Commission proposes that Slovakia adopts the euro in 2009.

Other Member States with a derogation
None of the other nine countries assessed in the report is found to meet all the convergence criteria for adopting the euro. The assessment of the progress made can be consulted in the Convergence Report 2008, including its technical annex, available on the internet at the following address:

See also separate IP/08/716 on 10 years of the euro and accompanying MEMO/08/288 including on the euro and its benefits

[1] The UK and Denmark have a legal opt out.
[2] March is the last month for which there were harmonised inflation statistics for all EU countries.
[3] See IP/08/649 of 28 April [4] See separate IP/08/714 also today.
[4] See separate IP/08/714 also today.

National Bank of Slovakia
Communications Section
Imricha Karvasa 1, 813 25 Bratislava, Slovak Republic
Tel.: +421-2-5787 2161,+421-2-5865 2161, +421-2-5787 2166, 421-2-5865 2166

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