Slovakia cleared to adopt euro as currency
BRUSSELS, Belgium—Slovakia on Wednesday cleared a crucial hurdle toward becoming the 16th member of the euro currency zone next year when European Commission and the European Central Bank said the country had met a set of strict economic standards.
The European Commission said it now will ask European Union finance ministers and other leaders to approve Slovakia's membership bid in June and July. They will fix the exchange rate for when Slovakia swaps the koruna for the euro.
Slovakia "is ready to adopt the euro on Jan. 1, 2009," said the EU top economy official, Joaquin Almunia.
He urged other euro candidates to step up their efforts to join the euro as "this is clearly in their long-term interest."
But Slovakia will likely be the last of a group of EU newcomers to take on the currency this decade as other eastern European nations curb their euro plans rather than strain to shape up their public finances -- and give away control over their currencies.
For Slovakia, it is a point of pride to join the 15-nation euro-zone after moving away from communism during the 1990s that saw it isolate itself for a time and fall behind its neighbors, particularly the Czech Republic that it split away from in 1993.
The country of 5 million people will be the largest to join the euro area since cash was introduced in 2002. So far, only three of the smallest countries to enter the EU in 2004 -- Slovenia, Cyprus and Malta -- have adopted the euro.
The European Central Bank, however, warned Slovakia of "considerable concerns" that inflation may rise more than the euro average in the future.
The soaring value of the koruna against the euro has dampened inflation in the past by making imports cheaper, but these and other factors will vanish -- risking higher labor costs as global prices for food and energy go up this year.
The bank called on Slovakia to push on with reforms to open up its economy and the job market as well as boosting competition for products, particularly for energy, that could help bring down its jobless rate, the highest in the 27-nation European Union.
Higher prices may be the cost of euro membership in any case as the country catches up economically with the euro zone. Prices are currently two-thirds the euro average and low wages have made it an attractive location for major manufacturers.
The EU's executive Commission said average yearly inflation in Slovakia in March was 2.2 percent -- well below an EU limit of 3.2 percent for joining the zone.
It also said that the government "will need to remain vigilant to keep inflation at a low level," warning that this meant curbing wage increases, limiting public spending and liberalizing its economy.
Slovakia also passed tests for its yearly budget deficit -- the difference between what a government spends and receives every year -- which stood at 2.2 percent of gross domestic product in 2007. The EU executive asked Slovakia to do more to reduce this in future.
