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European Commissioner for Economic and Monetary
Slovakia Euro Changeover Conference
Ladies and Gentlemen,
I am delighted to be in Bratislava today in such distinguished company, as we look forward to Slovakia's historic entry into the euro area. This country can be very proud that just five years after joining the European Union, it has successfully met all the criteria necessary to adopt the Single currency.
Indeed, it is to Slovakia's credit that impressive economic reforms pursued since the 1990s have now paid off. In just over three months, this country will swap its Crown for euro and become the 16th Member of the Economic and Monetary Union.
This will be a proud moment for the euro area as a whole. As many of you know, January 1st 2009 will be a double celebration. At the same moment Slovakia joins, the euro will celebrate its 10th anniversary. And what better symbol of the vitality of the EMU project than to welcome this country into the euro area exactly ten years after its inception.
EMU: lessons from the first ten years
So what have we learnt from the last decade and what can Slovakia expect for its future life in the euro area?
The Commission published an extensive analysis of the euro's first 10 years in our EMU@10 Report and we reached one, overwhelming conclusion: the euro - this unique experiment in economic history - has proved a remarkable success.
Today's difficulties notwithstanding, EMU has underpinned stability in the euro area for a decade, bringing low inflation and interest rates and improved public finances.
The euro has promoted economic and financial integration, enhancing competition and spurring innovation. It has generated trade and investment among its members, supporting growth and job creation.
Slovakia is well placed to benefit from the euro's advantages. For businesses and consumers alike, euro adoption will eliminate the pain of a volatile exchange rate and support price transparency. It will invigorate trade and make this country an even more attractive choice for investment.
And Slovaks will join the 320 million Europeans who are proud to share a common currency that ranks alongside the US dollar and the Japanese yen.
Nevertheless, it's clear that challenges lie ahead for the euro area, challenges which have been accentuated and amplified by the current economic difficulties.
It won't have escaped anyone's attention that we are going through testing times. Europe has been hit by a series of global shocks; an international financial crisis continues to rock credit markets; we have seen a surge in oil and food prices; and housing market corrections are taking place in a number of countries. The world now faces the prospect of a global economic downturn and inevitably, these shocks are taking their toll on the euro area economy too.
Fortunately, in such circumstances EMU is an asset. Its sound macroeconomic framework that has shielded us from previous shocks likewise puts us in a stronger position to cope with today's difficult conditions.
But in order to fully exploit the benefits of monetary union, we need to overcome certain challenges. One such challenge has been the emergence of large and persistent macroeconomic divergences between euro area members in terms of growth, inflation and external balances.
To be sure, some divergence is natural within a single currency area. But we have seen that the unwinding of these imbalances, has in some cases been protracted and painful.
Sound fiscal policies and good functioning product and labour markets are crucial to absorb and recover swiftly from external shocks. They are vital for a successful performance within monetary union.
But experience shows us that putting these policies into practice is not an automatic process and it does not happen overnight. Member States themselves need to be in the driving seat of necessary reform.
Slovakia: challenges ahead
What does this mean for Slovakia?
Clearly the requirements for successful participation in EMU are demanding. This is possibly even more so for a country on a trajectory of rapid catching-up.
The major challenge Slovakia will face is two-fold: it needs to further real convergence while at the same time maintaining price stability in a sustainable manner. Slovakia will have to pursue disciplined policies to adapt to the loss of exchange rate flexibility and hence reap the full benefits of the euro.
We have seen that Slovakia has made impressive progress over the last years in both real and nominal convergence. Thanks to bold structural reforms and stability-oriented macro policies, this country has one of the fastest convergence rates among nNew Member States. Certainly this has helped it meet the nominal Maastricht criteria.
Nevertheless, euro adoption is not about meeting the criteria at one point in time. Let me put it this way; meeting the convergence criteria is like obtaining a university diploma. It can open great opportunities but it does not guarantee that they will be successfully exploited.
Slovakia needs to ensure that its strong determination in reforming its economy up to now translates into sound policies after euro adoption.
First, an ambitious fiscal stance would help contain risks of excessive demand pressures. It would create more room for fiscal policy to smooth out the negative effects of potential asymmetric shocks and would help prepare Slovakia to cope with the challenges of an ageing population.
Second, Slovakia will need to ensure good functioning labour and product markets. Flexible labour markets, where wages are kept in line with productivity plus more competition in key sectors such as energy are essential for a good functioning economy in EMU. Furthermore, investment in infrastructure, education and R&D will be crucial to sustain strong productivity growth.
Third, in an environment of robust growth and rapid employment gains following euro adoption, strong vigilance will be needed to prevent the build-up of inflation risks.
Practical preparations for the changeover
Before I finish, let me turn to the question of practical preparations for the changeover. Careful preparation will ensure a good start for the euro in this country and will be essential to instil confidence in the new currency. Getting this right is the task at hand for the Slovak authorities, and it is a challenging one.
The fact that the 15 previous euro changeovers were largely successful can be misleading; some people may conclude that it went well because it was easy. This is not the case: it went well because of the hard work of thousands of people in banks, businesses and public administrations.
The Commission has gained a lot of experience in this field and is monitoring very closely Slovakia's practical preparations to the euro.
We can say at this stage that Slovakia is on the right track, but further work is necessary. We need to be extra vigilant to prevent price increases and abuses at the occasion of the changeover.
I know that the Slovak authorities are active here and that the Slovak trade inspection is doing a good job. The Ethical Code - which binds adherents not to use the changeover for undue price increases - is now in force. The Government should ensure that the provisions of the Code are respected and that the number of subscribers increases.
Ladies and Gentlemen, let me conclude.
Slovakia has reached an important milestone. Now all attention has to be focused ahead, to guarantee a successful changeover and a smooth integration into the euro area. The task will be challenging one. But, as the first decade of monetary union has shown, the prize is well worth the effort. I am confident you will succeed, and I look forward to welcoming Slovakia into EMU as we celebrate 10 successful years of the euro.