4 Importance of Euro for Slovakia Main reference currency 3/4 foreign exchange reserves All foreign exchange interventions 98% of spot foreign exchange trades Share of foreign trade in increases (expected to reach 90% after euro adoption)
5 Most of the Trade is in Most of the Trade is in % Export (2007) Source: ŠÚ SR.
6 Benefits Exceed Costs long-run GDP increase by 7-20 % * for comparability with permanent effects the one-off conversion costs are split to 5 annual installments Source: NBS.
7 Preparations started before the EU entry 2003: Strategy of euro adoption in SR it is beneficial to adopt euro as early as Maastricht criteria will be fulfilled (2008-2009) it is necessary to implement fundamental reforms (particularly public finance consolidation) to minimize inflationary pressure, the period of price deregulation shouldn't t take long
8 Consistent Plans Euro adoption strategy in 2003 – set target for euro area entry in 2008 or 2009 Specification of euro adoption strategy in 2004 – target set in 2009 National euro changeover plan approved in 2005 New government in 2006 confirmed plans to adopt euro in 2009 Updated Changeover plans Euro adoption had broad political support in Slovakia
9 Main Indicators at the Decision Deficit in 2002 was over 8% of GDP Inflation was fluctuating between 8% to 10% Increases in VAT, excise taxes and regulated prices were in the pipeline GDP growth in 2002 below 5% Unemployment exceeded 17% OCA criteria???
10 Monetary Policy Adjustments 2004 decision: from implicit towards explicit inflation targeting Inflation targeting within ERM II What were/are the puzzles? Assessment of exchange rate development with respect to Maastricht criteria fulfilment: close to parity – what does it exactly mean? How to cope with appreciation trend, when to intervene, how to communicate exchange rate developments (in fact when to maintain silent), is it necessary to consider exchange rate while deciding about interest rates?
11 Public Finance Reform Introduction of programme budgeting (3 years ahead) Creation of State Treasury and Agency for Debt and Liquidity Management Fiscal decentralization – delegation of responsibilities and their financing to local government 93.5% of PIT revenues addressed to local governments disadvantage: extra PIT revenues cannot be used for additional fiscal consolidation
12 Tax system reform– flat tax, very simple system Pension reform – 2 nd and 3 rd capital pillars Price deregulations – major adjustment of relative prices Social, healthcare and education system adjustments Main Structural Reforms
13 ERM II Entry28. 11. 2005 Request for Euro area entry5. 4. 2008 Convergence reports of EC and ECB, EC recommendation to the Council on abrogation of derogation 7. 5. 2008 Abrogation of excessive deficit procedure 3. 6. 2008 Council abrogates derogation and sets conversion rate 8. 7. 2008 Euro adoption 1. 1. 2009 Crucial decisions
14 Criterion March 2008 Reference value State of Fulfillment Inflation (average, %)2.23.2 Interest rates (%)4.56.5 Public debt (% GDP)29.4*60.0 Public deficit (% GDP)2.2*3.0 ER stability ERM II since Nov. 2005 * Year 2007 Maastricht Criteria were Met with a Sufficient Margin Source: Eurostat, European Commission, MF SR, NBS.
15 Development of Reference Value and Inflation in Slovakia Source: Eurostat. 1 p.p.
16 The European Union's finance ministers adopted the legal acts necessary for Slovakia to adopt the euro on 1 January 2009. Based on a Commission proposal, they also decided that the Slovak koruna will be replaced by the euro at the rate of 30.1260 SKK to the euro. Slovakia – 16th Country of the Euro Area (8 July 2008) Economic and Financial Affairs Council (ECOFIN) adopted final and formal decision allowing Slovakia to adopt the euro as from 1 January 2009. Source: press releases of EC and NBS, 8 July 2008. 1 = 30.1260 Sk
17 Euro brings stability a stable currency increases overall economic stability and generates favorable conditions for long-term business decisions Source: ECB. Appreciation of the currency Depreciation of the currency
19 Big-bang Short dual circulation (16 days) Only the conversion rate set by the Council can be used Continuity of contracts No harm to the citizen Prevent unjustified price increases and perceived inflation Changeover cost minimization Everyone covers the conversion costs him/herself Principles of Euro Conversion
20 National Euro Changeover Plan Detailed organizational steps, responsibilities, deadlines Open document – tasks can be changed or amended – updated annually 4 sectors + 2 cross-section areas financial sector, public administration, businesses, legislation information and statistical systems, communication
21 National Coordinator (Ministry of Finance) Working Committees Banks and financial Public administration and sectorlocal governments Information systems Business sector and consumer and statistics protection Legislation Communication National Coordinating Committee gvt. plenipotentiary Institutional Framework of Introduction
22 Frontloading of euro cash BusinessesATMs Commercial banks NBS Frontloading Sub-frontloading
23 Sub-frontloading Sub-frontloading started on October 28, 2008 and finished on December 31, 2008. About 14 000 subjects participated in sub- frontloading. In total 14.3 mil. euro banknotes worth 225 mil. and 195 mil. euro coins worth over 66 mil. were distributed. 1/4 of frontloaded euro banknotes and 2/3 of coins were used in sub-frontloading.
24 Consumer Protection System Consumer awareness (following dual price tags and warn of price increases) Dispute resolution (Black list) Control of consumer protection associations Control (SOI, ŠÚ SR,...) Monitoring of selected prices by ŠÚ SR on 2 nd and 5 th January 2009 and every 10 days Market competition Dual display of prices Rounding Rules Free cash exchange (up to at least 100 pieces) State rounding in favor of citizens Voluntary obligations of enterprises (Ethical Code, Declaration of Common Agreement to Adopt and Use Euro)
25 Ethical code Main commitment: euro will not rise prices Calls on enterprises to join – radio, prints, internet 3000 members Over 20 000 shops
26 Preparations till June 2007 Start till July 2008 Intensive campaign July 2008 – 1.1.2009 Finish – year 2009 Communication
27 Objectives Everybody should be informed (in appropriate form and extent) Informative and educational campaign, not persuasive Practical, Simple Main target group: General Public
28 Main Messages Conversion rate and the value of the euro Key dates Dual circulation Dual display of prices and consumer protection Price abuse prevention Banknotes and coins, security features EMU, ECB …
29 Target Groups General Public Children Youth Elderly Blind / Partially sighted Deaf / Hearing impaired Minorities (Hungarian, Roma) SMEs Government / Local governments
30 Tools Media – news, reports … mainly public media Advertising in media, outdoor advertising Direct mails Printed materials (leaflets, brochures, posters) Free info line (0800 103 104) Website (www.euromena.sk) Euro day Conferences, seminars, lectures …
39 Conversion of ATMs The conversion of ATMs passed smooth, one minute after midnight there were 28% of operating ATMs, and two hours after midnight almost 94% ATMs (conversion of POS passed even faster). Source: NBS. Share of operating ATMs
40 Cash Exchange Till 16.1.2009 – dual circulation – both SKK and EUR Exchange in banks notes till 31.12.2009 coins till 30.6.2009 no-fee limit: up to at least 100 pieces Exchange in NBS notes forever coins till 31.12.2013 no fees, cash must be counted and sorted
41 Dual circulation period - payments Source: EC. Share of payments in koruna and euro
42 Dual circulation period – cash in wallets Source: European Commission. Share of euro coins and banknotes in wallets
43 Dual Circulation Period (Change in ) Source: Eurobarometer.
48 Conclusion Early start Broad consensus (both political and social) Major economic reforms long before Maastricht assessment Good luck All stakeholders involved from planning stage Plan for the worst, hope for the best
49 Thank you for your attention 21 50, 20, 10 c 5, 2, 1 c