S&P sees Slovakia adopting euro in 2009

VIENNA Mon Oct 15, 2007 11:46am EDT

Kai Stukenbrock, Associate Director of Standard & Poor's, gestures during the Reuters Central European Investment Summit in Vienna October 15, 2007. REUTERS/Herwig Prammer (AUSTRIA)

Kai Stukenbrock, Associate Director of Standard & Poor's, gestures during the Reuters Central European Investment Summit in Vienna October 15, 2007.

Credit: Reuters/Herwig Prammer (AUSTRIA)

VIENNA (Reuters) - Slovakia is likely to adopt the euro in 2009 as planned but it must make sure its consolidation effort is sustained after the euro zone entry, Standard and Poor's credit analyst Kai Stukenbrock said on Monday.

Stukenbrock told the Reuters Central European Investment Summit that initial concerns the leftist government of Prime Minister Robert Fico would dismantle economic reforms from the previous centre-right administration had not materialized.

"Currently we do not see that they will deviate from that," he said, referring to the 2009 euro adoption goal.

"Basically, our bottom line is that we expect them to get into the euro zone in 2009...They will make the numbers."

Stukenbrock said the government appeared determined to get the fiscal deficit below the euro entry target of 3 percent of gross domestic product, as well as qualify on interest rate, inflation, debt and currency criteria.

But, he said, questions remain as to whether the government will remain disciplined as Fico won a June 2006 election with pledges of more social spending and shielding the poor against rising energy bills.

Stukenbrock noted that recent government moves to undo some of the pension reforms previously adopted would be risky to the fiscal outlook.

"That is one of the very good reforms done in Slovakia and undoing, over the long term, could cause some inconvenience," he said.

The Slovak economy is one of the most robust in the European Union, growing at 9.4 percent in the second quarter, while it met the euro adoption criterion -- defined as inflation no more than 1.5 percentage points above the average of the three lowest EU inflation rates -- for the first time in August.

Slovak inflation is forecast by the finance ministry at 1.6 percent in April 2007-March 2008, and at 1.5 percent in May 2007-April 2008. It sees the reference value at 2.8 percent and 2.9 percent, respectively.

S&P rates Slovakia's long-term sovereign debt 'A' with a stable outlook. It last raised the country's grade in December 2005. Stukenbrock said the rating is appropriate.

(For summit blog: summitnotebook.reuters.com/)

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