Times are getting exciting, Fico must extend Sramko all cooperation and help on the fiscal side...
Slovakia must step up efforts to join euro - bank chief
By Andrew McCathie
dpa German Press Agency
Published: Wednesday November 8, 2006
By Andrew McCathie, Bratislava, Slovakia- Slovakia needs to step up efforts if it is to meet its tight deadline for the next key step in the nation's European integration process - signing up to the euro in January 2009, the country's central bank chief told the Deutsche Presse-Agentur dpa. But while Ivan Scramko expressed cautious optimism that Slovakia would be able to knock its public finances into shape in time for joining what is currently the 12-member eurozone, he roundly criticised the tough fiscal rules for adopting the euro as set out in the Maastricht Treaty.
The Slovakian national bank governor said that to a considerable extent the selection process is influenced by external factors and is not in the hands of the those nations applying to join the euro.
"This is further proof that the Maastricht criteria have not been adequately set," Scramko said.
However, he warned that Slovakia, which was one of the ten largely Central European states that joined the European Union in May 2004, needed to take steps to keep the lid on inflationary pressures to ensure the nation's euro bid did not founder.
In particular, this included revamping the nation's fiscal policy to ensure that it is more flexible and trimming the deficit.
"The perspectives for joining the euro area in 2009 are good, although there are risks," he said.
Indeed, he saw the key challenge facing the nation as bringing its inflation rate into line with the tough reference rate (currently about 2.6 per cent) that has been set for countries seeking to join the common currency.
From their top-floor boardroom of the central bank's high-rise building in central Bratislava, the members of the bank's rate-setting council have a remarkable vantage point to view the fast-paced economic changes underway in the new EU member state.
As a measure of the construction boom underway in Bratislava and that has helped to fuel concerns about overheating in the Slovakian economy, the central bank building has just recently lost its status as the city's tallest building.
Robust domestic demand in Slovakia is projected to power the nation's economic growth ahead by 6.5 per cent this year with annual inflation running at 4.6 per cent in September, down from 5.1 per cent in August.
Price stability might be the main priority of the Slovakian national bank, but Scramko said other factors such as unemployment and economic growth needed to be taken into account. "We are not going to achieve low inflation at any cost," he said.
After inflation this year knocked Lithuania out of the running to become a eurozone member in 2007, the small former Yugoslav republic of Slovenia will become the only new EU member state to join the euro on January 1.
But should Slovakia succeed in meeting the 2009 deadline for euro membership it will become the first of the leading new EU states - Poland, the Czech Republic and Hungary - to adopt the euro.
Analysts have rolled back their timetable for when Poland, the Czech Republic and Hungary are likely to join the euro.
Slovakia has already become the first of the four key EU newcomers to sign up to the European Rate Mechanism, which represents a key step along the tough road to euro membership.
"We are closely watching Slovenia and hope to learn some more lessons from its practical experience with the changeover," said Scramko.
"The most difficult task is to bring inflation below the Maastricht level by spring 2008," said Scramko.
Spring 2008 is likely to be when the European Commission will decide whether Slovakia meets the strict fiscal targets for adopting the common currency.
In the meantime, the central bank in Bratislava has embarked on a rate-hiking cycle to tame consumer price pressures, having hiked its benchmark rate by a total of 175 basis points since the start of the year.
But while many analysts believe that Slovakia might have a chance to drive its budget deficit below the strict 3.0 per cent target, Bratislava will be hard pressed to grind inflation back below the even tougher goal for euro candidates.
Government and central bank officials along with business leaders have already prepared a national euro changeover plan, which sets out action plans for the country's different economic sectors.
This also includes a mandatory dual display of prices for about six months before and at least 12 months after the changeover with the central bank chief stressing the need to monitor prices following euro adoption.
But said Scramko: "We need foremost to take further steps towards disinflation. This does not only include monetary policy steps. We need support from a prudent fiscal policy and we need moderate wages."
After all, he said the central bank is not expecting those making the final decision on Slovakia's entry to the euro to show it any leeway.
"We are prepared that the assessment of our convergence will not forgive us anything, but we also expect that both the criteria and the assessment process will not become tighter than they have been till now," he said.