Slovakia rejects euro inflation fears

By Jan Cienski in Bratislava

International fears that Slovakia will let spending spin out of control once the central European state joins the eurozone next year are misplaced, according to Robert Fico, the country's prime minister.

"I can confirm that the public deficit in 2009 will be only 1.7 per cent. We are continuing the consolidation of public finances," he said.

His comments come amid worries at the European Central Bank and among some analysts that Slovakia, the fastest-growing economy in the European Union, would follow in the footsteps of Slovenia, the first former communist euro member, which has the highest inflation in the currency bloc.

Mr Fico has a reputation for leftwing and occasionally populist economic views. He has, for example, ruled out privatisation of any assets in state hands. Since his election victory two years ago, however, his government has exercised more responsible economic management than feared.

"In 2006 many politicians, many analysts, many people, believed that my government would be very bad for the country, for the economy, for everything," said Mr Fico. "But the case is that in 2008 we have the highest economic growth in the EU, we have control over inflation, there are only positive trends. The introduction of the euro is another success."

Mr Fico said inflation, currently 4.6 per cent, would rise by about 0.4 per cent next year because of rounding up that typically occurs with a currency change.

Hoping to stifle the inflation that is a result of a fast-growing economy catching up on its more developed partners, Slovakia argued for and received a very strong final conversion rate of 30.126 korunas to the euro. This made exporters wince but pleased voters.

"We reached an optimal balance between the interests of the common people and companies," said Jan Pociatek, the finance minister. "The exchange rate should ease inflationary pressure in 2009."

The government is trying to keep wage demands under control by linking them to productivity, which grew by 7 per cent last year. However, controlling pay is becoming more difficult, thanks to the tight labour market in the booming west of Slovakia, and the fast-growing economy, which expanded by 10.4 per cent in 2007 and which the finance ministry expects to grow by 7.7 per cent this year. Mr Pociatek said joining the euro would boost growth by about one percentage point..