Slovenia's changeover to the euro - a clear success
European Commission - IP/07/609 04/05/2007
Brussels, 4 May 2007
The changeover to the euro in Slovenia was a swift and smooth affair and although the price of some goods and services increased, overall inflation has remained broadly stable, shows a Communication adopted by the Commission four months after Slovenia became the 13th member of the euro area. For the other countries waiting to adopt the euro, the experience shows that the 'Big Bang' approach - i.e. irrevocable locking of the exchange rate and simultaneous introduction of the euro banknotes and coins – works and that a two-week dual circulation period is sufficient provided that the changeover is well and timely prepared. In some aspects, e.g. return of legacy cash, Slovenia even performed better than when the euro cash was introduced in 2002, thereby minimising costs and burdens on businesses.
"Slovenia's adoption of the euro was a swift and smooth affair. This once more underlines the importance of early and careful preparations and of timely information and communication on the euro," said European Economic and Monetary Affairs Commissioner Joaquin Almunia
Slovenia adopted the euro on the 1st of January 2007. Contrary to the first group of countries that started by fixing irrevocably the conversion rate of their currency into the euro in 1999 (2001 in for Greece) and got the euro cash only three years later (one year for Greece), Slovenia went for a 'Big Bang' scenario where the two took place simultaneously. All EU countries that have yet to adopt the euro and have drawn up a so-called National Changeover Plan also plan for a 'Big Bang' scenario. This makes sense since the euro has been in circulation for five years.
Everything went swiftly and smoothly
Slovenia's changeover from the tolar to the euro was a swift and smooth affair. The fact that Slovenians were already familiar with the euro owing, in particular, to their proximity with euro–area members Austria and Italy also contributed to a rapid changeover process. Before €-day, the vast majority (more than 90%) had already seen euro banknotes and coins and most of them had even used the single currency.
A daily observation of the situation in the field for the Commission showed that on 5 January, only three working days into the changeover process, more than half of the respondents to a survey had only euro cash in their wallets and purses, no longer tolars. On the same day, more than 70% of all cash payments were also already carried out in euro. By mid-January, virtually all cash payments were carried out in the new currency, confirming the technical feasibility of a short period of dual circulation of euro and national cash - two weeks in the case of Slovenia -, which contributes to minimise the burden on retailers and other businesses, and speeds up the transition.
In some ways, the changeover was even swifter than in 2002. More than 80% of the tolar banknotes, in value, had been returned to the Slovenian central bank by 11 January compared with only 40% of the legacy notes in the first wave of countries. This prevented a repetition of the severe bottlenecks recorded in 2002 when retailers in some countries struggled with storage and security problems.
Inflation remains broadly stable
The Slovenian experience illustrated once more that perception, expectation and reality with respect to price evolutions do not necessary go together, confirming that a change of currency affects people's scales of values and requires a mental adjustment process that is only gradual.
While there were concerns about price increases and some unusual rises did indeed occur, those fears were largely unjustified.
Overall prices actually declined in January in Slovenia, compared to December 2006, as they have been doing for a number of years due to the impact of the seasonal sales. The fall in annual inflation from 3% in December 2006 to 2.8% in January was accentuated by the then decreasing energy prices. Overall, in the first four months of this year prices went up by 1.3% against 1.5% for the same period of 2006, according to preliminary information recently published by the Statistical Office of Slovenia.
Based on the preliminary information reported by the Slovenian statistics office, Eurostat puts the total impact of the changeover on consumer price inflation during and after the changeover period at 0.3 percentage points, which is similar to the experience of the first-wave changeover. A separate study by the Institute of Macroeconomic Analysis and Development of Slovenia estimated the effect of the changeover on inflation at 0.24 percentage points.
After an initial period during which a gap emerged between real inflation and perceived inflation, that gap has now started to diminish in Slovenia, pointing to a more rapid normalisation of price perceptions than has been the case in the euro area. However, that gap has also started to narrow in the latter case (see graphs below).
All in all, a vast majority (95%) of Slovenians believed that the changeover
took place smoothly and efficiently, according to a survey conducted at the end
of January. At the same
time, more than nine out of ten Slovenian citizens feel well informed about the
euro and were satisfied with the level of information they had been provided by
the national authorities. This once more demonstrates the crucial role of
information and communication on the euro in ensuring a successful changeover
Source: Eurostat/DG ECFIN
Actual and perceived inflation in the euro area
Source: Eurostat/DG ECFIN