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Brussels gives Slovakia euro green light

Latest update : 2008-05-07

Slovakia is ready to join the euro zone and use the EU's common currency next January, according to a European Commission recommendation released on Wednesday.

BRUSSELS - Slovakia got the green light on Wednesday to adopt the euro in 2009, outpacing bigger EU newcomer nations despite European Central Bank doubts about how long it can hold down inflation.

In a keenly awaited recommendation, the European Commission said the nation of 5.4 million people is ready to switch to the currency now shared by 15 states, crowning years of ambitious economic reforms in Slovakia.

If given the go-ahead by European Union finance ministers in July, as expected, Slovakia will become the fourth of the EU's new member states -- which joined the bloc since 2004 -- to adopt the euro. Much smaller Slovenia entered the euro zone in 2007, followed by Cyprus and Malta this year.

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

The Slovak crown firmed to a record high of 32.055 per euro in reaction to the Commission's recommendation.

In a separate report, the ECB acknowledged that Slovakia had met the euro zone entry benchmarks as of March this year, but it was worried about Bratislava's ability to keep inflation down.

"Looking ahead, the latest available inflation forecasts from major international institutions ... suggest that annual average inflation is likely to rise considerably in 2008 and decrease slightly in 2009," the ECB said.

"To sum up, although the 12-month average rate of ... inflation in Slovakia is currently well below the reference value, there are considerable concerns regarding the sustainability of inflation convergence," it said.

The ECB is anxious that euro zone entrants should not only get their inflation down before joining, but keep it down afterwards. Inflation has soared in Slovenia since it adopted the common currency to the highest level in the euro zone, despite a Commission forecast that the rate would remain muted.

The Commission also said new EU member states Poland, the Czech Republic, Hungary, Estonia, Latvia and Lithuania, Bulgaria and Romania were not yet ready for the euro.

This is because their inflation rates are too high, budget deficits too wide or because they have not yet joined the ERM II currency system, a stability test for the euro.

Those countries are likely to join the euro well after 2010. "The other member states ... (not in the euro zone) are making good progress towards the euro, though at different paces," Almunia said.

TURNAROUND

The recommendation crowns Slovakia's ambitious economic reforms launched by a previous right-wing government that have turned the country, once burdened by inefficient Soviet-era industries, into an investors' favourite.

But many ordinary people, notably pensioners, are worried the euro will bring higher prices, opinion polls show.

The Commission said Slovakia, which accounts for a small fraction of the euro zone's 9 trillion-euro ($14 trillion) economy, met all the entry criteria on inflation, interest rates, its budget deficit, public debt and currency stability.

A country wanting to join the euro must have inflation which is no higher than 1.5 percentage points above the average of the three EU members with the lowest inflation rates.

The Commission said Slovakia's 12-month average inflation was 2.2 percent in March, below the permitted, 3.2 percent cap.

Date created : 2008-05-07

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