Slovakia adopts euro as its currency

 

Slovakia joined the euro yesterday, hoping membership of the single currency will soften the blow of the global financial crisis and bring about greater economic convergence with richer European Union states.

Slovakia left behind other, bigger east European states - such as Poland, Hungary and the Czech Republic - and will likely be the region's last euro entrant for some time, given the present financial turmoil.

"Especially at the time of a financial crisis, it is visible that small currencies are not able to withstand pressures on the markets," said finance minister Jan Pociatek.

Like the EU's other eastern capitals, Bratislava has traded drab communist-era facades for flashy restaurants and high-end boutiques since joining the bloc in 2004. But Slovakia's 5.4 million people will be the poorest in the euro club, with gross domestic product per capita just 71 per cent of the EU's average.

However, many Slovaks see the single currency as a source of pride, hoping it will bring economic growth and help the country catch up with the older EU states. "It's beautiful, I feel even more European now," said Ivan Decman (27), celebrating in Bratislava under fireworks and euro signs displayed on large television screens.

Joining the euro has capped a decade of transformation for Slovakia from central European laggard to an EU growth leader. Its economy expanded 10.4 per cent last year. This year, the government sees growth exceeding 4 per cent despite recession in big euro-zone states such as Germany.

The fast economic growth, stimulated by the reforms of the previous centre-right cabinet, has helped leftist prime minister Robert Fico cut budget deficits while boosting welfare spending.

Slovakia has also avoided major damage from the financial crisis, although its $100 billion (€71.65 billion) economy will be hit by weaker demand for the cars and televisions produced at scores of new factories set up by foreign firms in a decade of booming investment.

Slovaks had long feared the euro would mean higher prices for goods and services, as seen in previous newcomers, such as Slovenia in 2007. Opinion polls show Slovaks still worry about a spike in prices, but they have become more enthusiastic about the single currency since the financial crisis rocked their emerging markets neighbours.

The crown is the only unit in the region that has not weakened against the euro since its exchange rate was locked in at 30.126 against the single currency in July.

In comparison, Poland's zloty lost 30 per cent per euro and Hungary's forint 15 per cent. The Czech crown is down 12 per cent.

In a separate development yesterday, Czech prime minister Mirek Topolanek said his government will set a euro-adoption date on November 1st. - (Reuters, Bloomberg)