euro for yuri
10 June 2008

Slovakia was given the green light by the European Commission in May and by EU finance ministers this week to switch from the koruna to euro on 1 January 2009. EU heads of state are expected to rubber stamp those decisions later this month.

But while Bratislava prepares for the changeover, its central European neighbours, the Czech Republic and Poland, are hesitating despite the Slovak central bank's assertions the euro will boost annual growth by 0.7 percent and attract foreign investment.

The current Czech centre-right government has set no target date for euro adoption, although Czech Central Bank governor, Zdenek Tuma, said last week that eurozone entry was possible as early as 2012. Poland has also thrown out 2012 as a possible date but has made no firm commitment.

The difference between Slovakia and the rest is most starkly highlighted by the Czech Republic, which shared the same currency with its neighbour as part of the former Czechoslovakia for almost half a century and maintains very close ties following their 1993 split.

A hard core of leaders within the senior Czech coalition party, the right-wing Civic Democratic Party, is highly suspicious of most things emanating from Brussels, especially the euro, taking its line from party founder and current head of state, Vaclav Klaus.

Tuma's own institution is an illustration of his country's current euro stand-off. It has shied away from undertaking an analysis of the economic gains or disadvantages of the single currency.  "I am very sceptical about such studies," Tuma told AFP, adding that evaluating euro adoption is "a very complex matter."

Slovak's central bank has in contrast been the biggest cheerleader for the changeover, partly because of fears its small but very open economy would be more vulnerable than most to wild fluctuations in exchange rates, explained Bratislava-based Tatra Banka analyst, Juraj Valachy.

The Czech Republic had already established itself as a regional favourite for foreign investment but put off the difficult reforms. The current fragile Czech government is still grappling with health reforms and looks a long way off from finding the cross party consensus that would allow it to push ahead with pension overhaul.

"They were in effect very different countries back then and now," Valachy concluded. The Czech government's current line is that the reforms should be dealt with first, with euro adoption addressed afterwards.

Poland has adopted a similar approach. Liberal Prime Minister Donald Tusk stated in March that the economy and public financies should be ready for euro adoption by 2012 but refused to set it as an adoption date.

"Slovakia could be a good example for us and could break the the current euro isolation but if there are technical and economic problems it could serve as a warning," he told AFP.

"All other countries will now be waiting to see what the effect will be on Slovakia, if the euro will lead to inflation. This is especially the case of Poland and the Czech Republic," added Valachy.

AFP, Chris Johnstone,  http://business.iafrica.com