BRUSSELS Slovakia received the green light on
Wednesday to join the euro zone on Jan. 1, 2009, outpacing
bigger, ex-communist European Union newcomers after years of
ambitious economic reforms.
In a keenly awaited recommendation, the European Commission
said the nation of 5.4 million people is ready to switch its
crown to the currency now shared by 15 states.
The move is likely to boost already impressive growth rates
in a country that is becoming the world's major car producer.
If given the go-ahead by EU finance ministers in July as
expected, Slovakia will become the fourth EU new member state
-- which joined the bloc since 2004 -- to adopt the euro.
Much smaller Slovenia entered the euro zone in 2007
followed by Cyprus and Malta this year.
"The European Commission today concluded that Slovakia
meets the criteria for adopting the euro," the Commission said
in a statement.
In separate assessments, the Commission said fellow EU
newcomers from central and eastern Europe -- Poland, the Czech
Republic, Hungary, Estonia, Latvia and Lithuania, Bulgaria and
Romania -- were not yet ready for the euro.
This is because their inflation rates are too high, budget
deficits too wide or because they have not yet joined the ERM
II currency system, a stability test for the euro.
Those countries are expected to join the euro well after
2010. Poland, by far the largest country in the region, has
tentatively targeted 2012 for its euro zone entry.
Older EU members Britain and Denmark have opted to stay
outside the euro zone for now.
Sweden voted against euro entry in a referendum in 2003.
The recommendation crowns Slovakia's ambitious economic
reforms launched by the previous right-wing government that
have turned the country, once burdened by inefficient
Soviet-era industries, into an investor darling.
Only 10 years ago, Slovakia faced exclusion from talks to
the join the EU because of former Prime Minister Vladimir
Meciar's anti-Western, autocratic style.
But under the subsequent government of Prime Minister
Mikulas Dzurinda, Slovakia has introduced an investor-friendly
flat tax, launched private pension funds and cracked down on
abuses of the welfare system, allowing the economy to grow by
more than 10 percent last year.
Using the euro will make life easier for Slovakia's biggest
investors -- car makers Volkswagen (VOWG.DE), PSA Peugeot
Citroen (PEUP.PA) and Kia Motors Corp. (000270.KS) -- by
removing the risk of currency fluctuations.
But many ordinary people, notably pensioners, are worried
the euro will bring higher prices, opinion polls shows.
The Commission said Slovakia, which accounts for just a
small fraction of the euro zone's 9 trillion-euro ($13.9
trillion) economy, met all euro zone entry criteria on
inflation, interest rates, budget deficit, public debt and
The biggest hurdle on Slovakia's euro path was meeting the
inflation criterion in a sustainable way.
A country wanting to join the euro must have inflation no
higher than 1.5 percentage points above the average of the
three EU members with the lowest inflation rates.
The Commission confirmed Slovakia's 12-month average
inflation was 2.2 percent in March, comfortably below the
permitted ceiling of 3.2 percent.
Slovakia's left-wing Prime Minister Robert Fico worked hard
to convince the EU about his determination to fight inflation.
In April, the two-year-old government passed a fiscal plan
aimed at quicker budget deficit reduction, although many EU
officials believe fiscal tightening should be more ambitious.
The EU's 27 finance ministers will in early July set the
final exchange rate between the crown and euro.
Fico has said he will aim for the strongest possible
switchover exchange rate. The market has expected a rate of
32.50 crowns to the euro, according to a Reuters poll, compared
with an all-time high of 32.160 reached earlier on Tuesday.