Slovaks latch on to euro anchor in economic storm

Slovakia adopts the euro at midnight on Wednesday.

Slovaks latch on to euro anchor in economic storm

Slovakia adopts the euro at midnight on Wednesday and its people are hopeful that membership will insulate them from the worst of the storms battering Europe's emerging economies.

While governments across the region cut growth forecasts and investors dump assets -- wiping out years of gains in other eastern European Union currencies like Poland's zloty and Hungary's forint -- Slovakia is surviving relatively unscathed.

"It's excellent," said Matej Sobol, a 27-year-old sports instructor from the northern ski resort town Liptovsky Mikulas. "Seeing what is happening to the zloty or forint and then having the crown fixed to the euro has really been a sort of a shield."

The neighbouring Czechs once sneered at Slovakia's push to join the euro quickly. The Alpine country of 5.4 million will be the poorest euro member, behind Portugal with 71 percent of the EU's average gross domestic product per capita.

But it is already seeing benefits. Its crown is the only currency in the region that has not weakened since its exchange rate was locked at 30.126 per euro in July, a boon for Slovaks who can travel abroad or buy imported goods at stable prices.

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

Euro adoption had for months fuelled fear among Slovaks that the switch will bring higher prices, as seen in other newcomers to a club that will now have 16 members.

But months of financial turmoil across the globe and international rescue packages for countries such as fellow EU members Latvia and Hungary have changed many people's minds.

A poll for daily Hospodarske Noviny in November showed 58 percent of Slovaks viewed the euro positively, versus 43 percent a year earlier. Only 35 percent saw it as negative, from 52 percent.


Anchor in troubled waters

On Wednesday, the final day for the crown, main broadsheet Sme splashed a cartoon on its front page picturing the euro as a sturdy anchor for a small boat rocked by turbulent waters.

Slovakia will be the first among the larger ex-communist EU states to adopt the euro. Smaller Slovenia, a wealthy nation which was part of the former Yugoslavia, joined in 2007.

It will also likely be the region's last entrant for years as the crisis makes it more difficult to qualify.

Hardship in the euro zone, Slovakia's main export market, means the $100 billion economy will suffer. A 25 percent fall in new auto sales in Western Europe is a dire signal for the country that leads the world in cars produced per capita.

The euro will also rob it of a flexible exchange rate that could make its exports cheaper for Western consumers. On the other hand, the weakness of the zloty or forint could eventually help Poland and Hungary recover.

Although growth is expected to plummet from a peak of 10.4 percent in 2007, the Slovaks are still reaping benefits of structural reforms made by its previous government, and its cheap skilled workers. It could still lead the EU in growth, and the cabinet forecasts a 4.6 percent expansion.

The switchover will kill off the short-lived Slovak crown, which appeared after Slovakia split from former Federation partners the Czechs in 1993. It adds to a series of changes since Slovakia first emerged as part of Czechoslovakia in 1918.

"This is already my fifth currency," said Michal Burcin, a 78-year-old pensioner. "I will just get used to it."

Reuters
Last Mod: 31 Aralık 2008, 14:58
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