Slovakia has applied to join the eurozone next January, dismissing the concerns of some European central bankers and economists that its economy is not ready for the rigours of membership.
If the application at the weekend is successful, Slovakia will become the sixteenth of the European Union’s 27 countries to adopt the euro. It will also be the second former communist country to do so, following Slovenia, which joined last year.
It would be a remarkable turnround in the fortunes of Slovakia, which 20 years ago was an economic backwater in Czechoslovakia, one of the communist world’s most politically stagnant states.
Slovakia did not become independent until 1993 but has made a rapid switch from central planning to a market economy and by attracting high levels of foreign investment in the car and electronics industries.
It joined the EU in 2004 and recorded economic growth last year of 10.4 per cent, a rate that causes some EU officials to worry about the risks of overheating.
Jan Pociatek, Slovakia’s finance minister, told the Financial Times his country had learnt a lesson from other countries that had joined the eurozone and then run into trouble with inflation, budget deficits and declining international competitiveness. “We’ve learnt always to respect, in wage-bargaining, the principle that wage increases must lag behind productivity increases. We don’t want to run into an overheating scenario,” Mr Pociatek said.
“I’m quite optimistic. Wage levels are lower than in neighbouring countries. People in Slovakia are used to slower wage increases. They’ve been used to it for years and are psychologically adjusted to it.”
He regretted that Slovakia, an arms manufacturing centre in communist times, had abandoned the industry after 1990. “It just went down the drain. They didn’t think through the consequences. Many places depended on arms-making. There were sophisticated chains of production,” he said.
Slovakia’s chances of joining the eurozone next year will depend on the European Commission, which must decide soon whether it can meet the necessary criteria on a sustainable basis. The key dates are April 28, when the Commission will publish its latest economic forecasts, and May 7, when it will report on how much progress non-euro countries are making towards meeting the criteria.
In Slovakia’s case, the crucial debate concerns inflation. Slovakia’s average inflation over the past 12 months is only 2.1 per cent – safely within the EU limits – but some experts at the Commission and European Central Bank fear the rate will climb if Slovakia adopts the euro next January.
This is what happened in Slovenia, where the government last week raised its inflation forecast for this year to 5.2 from 3.5 per cent. “We’re expecting an increase in inflation but there are no reasons for that other than rising food and oil prices, which are affecting everybody,” Mr Pociatek added.
