SLOVAKIA WILL celebrate its first year in the European single currency tonight with a gala event entitled "Goodbye koruna, Welcome euro", writes JAN CIENSKI
The government claims euro zone membership spared the country the worst effects of last year’s economic crisis.
There is no doubt that getting into the euro just before the global economic crisis hit the region saved Slovakia from the wild currency swings that tested its central European neighbours.
What is less certain is whether being in the common currency did much to help the economy in 2009.
The country’s central bank estimates that gross domestic product contracted by about 4.8 per cent in 2009, slightly worse than the 4.1 per cent contraction forecast for the Czech Republic.
Like the Slovaks, the Czechs have a very open economy heavily geared towards exports to Germany and strongly reliant on car production.
However, the Czech koruna depreciated during the crisis, aiding exports, and the currencies of Hungary and Poland fell even further.
Jan Toth, chief economist with UniCredit Bank Slovakia, says an export-oriented economy like Slovakia would have seen its currency depreciate during the economic crisis if it had been free-floating. “The euro turned out to be more of a net disadvantage,” he said.
The country’s construction, retail and manufacturing sectors were all hit harder than those of its neighbours. Winter tourism suffered a 26 per cent drop as holidaymakers stayed away from Slovak ski resorts made more expensive by the euro.
However, Zdenek Tuma, the governor of the Czech National Bank, said being in the euro had helped spare Slovakia the worst of the economic disruption that affected the rest of the region.
For example Slovakia’s cost of borrowing on international markets was cheaper than for the Czech Republic. Slovakia’s economy is forecast to grow 3.1 per cent in 2010, far greater than the 0.3 per cent forecast by the Czech finance ministry.
As growth returns, investors are trickling back, with some saying they are tempted by the prospect of avoiding currency risk. “The euro allows us to make long-term plans and it eliminates exchange-rate risks caused by the volatility of the Slovak crown,” says Vladimir Machalik, a spokesman for Volkswagen Slovakia, which is starting production of a new small car in its factory outside Bratislava.
In a further sign of confidence Taiwan’s AU Optronics signed a €191 million agreement last month to open an LCD television component factory in Slovakia.
Although Slovak workers have become slightly more expensive than those of Poland and Hungary, they are still much cheaper than their rivals in western Europe, and investors already in the country are unlikely to make decisions to relocate based on possibly temporary changes in exchange rates.
Politically, joining the euro has proved to be a coup for Robert Fico, the prime minister. A survey shows that almost 80 per cent of Slovaks approve of their new currency, which Mr Fico has called Slovakia’s “shield”.
However, Czechs seems unconvinced by the performance of their neighbours, and many have maintained their reservations about rushing towards the common European currency.
Mirek Topolanek, former prime minister and leader of the centre right Civic Democratic party, says the Czech Republic may be ready in 2015 to begin discussing joining the exchange rate mechanism, a precursor to joining the euro.
But Czech businesses are less sanguine. “We need the euro as soon as possible in order to be able to address the current problems caused by the world financial crisis,” says Jaroslav Cerny, spokesman for the Skoda Auto, a Volkswagen subsidiary.
“A failure to introduce the euro may drive not only our current suppliers, but also all potential investors, out of the Czech Republic.” – (Copyright The Financial Times Limited 2010)
