Slovakia adopts euro, hopes it will soften crisis

Slovakia joined the euro on Thursday, hoping that membership of the single currency will soften the blow of the global financial crisis.

Slovakia adopts euro, hopes it will soften crisis

Slovakia joined the euro on Thursday, hoping that membership of the single currency will soften the blow of the global financial crisis and bring about greater economic convergence with richer European Union states.

Slovakia left behind other, bigger east European nations -- Poland, Hungary and the Czech Republic -- and will likely be the region's last euro entrant for some time given the present financial turmoil.

"Especially at the time of a financial crisis, it is visible that small currencies are not able to withstand pressures on the markets," Finance Minister Jan Pociatek told journalists.

Like the EU's other eastern capitals, Bratislava has traded drab communist-era facades for flashy restaurants and high-end boutiques since joining the bloc in 2004. But Slovakia's 5.4 million people will be the poorest in the euro club, with gross domestic product per capita of 71 percent of the EU's average.

However, many Slovaks see the single currency as a source of pride, hoping it will bring economic growth and help the country catch up with the older EU states.

"It's beautiful, I feel even more European now," said Ivan Decman, 27, celebrating in Bratislava under fireworks and euro signs displayed on large TV screens.


Transformation

Joining the euro has capped a decade of transformation for Slovakia from central European laggard to an EU growth leader.

Its economy expanded 10.4 percent last year. Next year, the government sees growth exceeding 4 percent despite recession in big euro zone states such as Germany and Britain.

The fast economic growth, stimulated by the reforms of the previous centre-right cabinet, has helped leftist Prime Minister Robert Fico cut budget deficits while boosting welfare spending.

Slovakia has also avoided major damage from the financial crisis, although its $100 billion economy will be hit by weaker demand for the cars and TVs produced at scores of new factories set up by foreign firms in a decade of booming investment.

Slovaks had long feared that the euro would mean higher prices for goods and services, as seen in previous newcomers, such as Slovenia in 2007.

Opinion polls show Slovaks still worry about a spike in prices, but they have become more enthusiastic about the single currency since the financial crisis rocked their emerging markets neighbours.

The crown is the only unit in the region that has not weakened against the euro since its exchange rate was locked in at 30.126 against the single currency in July.

In comparison, Poland's zloty lost 30 percent per euro and Hungary's forint 15 percent. The Czech crown is down 12 percent.

Smooth transition

The central bank said banking systems were converting to euros with no problem, and that 96 percent of 2,258 ATMs in Slovakia were ready to issue euro notes on Thursday afternoon.

In Bratislava, many people were still paying with Slovak crowns, in use until Jan. 16, but shops and restaurants appeared to have switched to the new currency without ado.

"People are paying in euros, cash or credit cards, we have had no problems with that," said Evka Nemethova, a waitress at a restaurant in the centre of Bratislava.

The crown's demise caused some mourning, but hopes of protection against financial turmoil were high.

"We are losing part of us, part of our identity... But, in the world of an economic crisis, the euro is boosting the self-confidence of the Slovak people," Fico said shortly before he withdrew 100 euros from an ATM at the parliament building.

Reuters
Last Mod: 01 Ocak 2009, 17:46
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