Slovenian Approach to EMU Boštjan Jazbec Member of the Governing Board The views expressed herein are those of the author and not necessarily those of.

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Presentation transcript:

Slovenian Approach to EMU Boštjan Jazbec Member of the Governing Board The views expressed herein are those of the author and not necessarily those of the Bank of Slovenia.

Contents Macroeconomic Stabilization and Transition Macroeconomic Perfomance Maastricht Criteria Entry to ERM2 and Adoption of Euro Conclusions

Macroeconomic Stabilization and Transition Better initial conditions than in other transition economies Money-based stabilization program Rehabilitation of the banking sector Sound macroeconomic performance Inflation

GDP per capita

Openness (exports and imports in % GDP)

Foreign Trade with EU (in % of export and import, 2001)

Government Deficit

Public Debt (% GDP; ESA95)

Price Level

Relative Price Convergence

Y-on-Y Final Quarter Inflation

Maastricht Criteria

Synchronization of Business Cycles

GDP Composition by Activity

Financial Sector

Banking Sector by Total Assets

Slovenia vs. Greece vs. Portugal

Disinflation Trend in Slovenia The disinflation trend displays a breaks due to a combination of shocks in 1999: introduction of the VAT, demand boom, oil shock.

Exchange Rate Pass-Through

ERM2 - Why as Early as Possible? Are there any reasons to wait? Can small open economy run independent monetary policy? Sound macroeconomic performance

ERM2 Risks Capital inflows entail risks of volatility and exchange rate pressures Credit demand and booms: –low interest rates, demand boom and falling saving ratios can produce overheating, CA deficit and asset price bubbles. Balassa-Samuelson effect may generate inconsistencies between the inflation and exchange rate criteria. –Estimates for Slovenia range between 1 and 1.5%.

ERM2 Policy Mix Joint program between BoS and the Slovenian Government from Nov Monetary policy : ER management in line with the ERM2 criterion. BoS has acquired experience and designed its instruments to stabilize the ER movements. Fiscal measures : low fiscal deficits, counter-cyclical spending, reduced rigidities and formula- driven social transfers, buffer stock relative to the Stability and Growth Pact (SGP). Wage and price flexibility needed to absorb asymmetric shocks (progressive deindexation). Synchronization of activity with euro area implies a consistency with the ECB stance. Financial market supervision Appropriate central parity

Conclusions Wish us all the best.