1. The euro experiences in Slovakia Ivan Šramko, Senior Economic Advisor Intesa Sanpaolo, PwC www.pwc.com/sk

2. PwC Originally expected effect of introduction of the Euro Emphasis on elimination of transaction costs and additional growth of GDP Slide 2 May 2012 Long –term increase of GDP by 7-20% * For the purpose of comparability with permanent effects, the one-off costs of currency exchange have been spread over five years

3. PwC Actual effect and changes in assumptions The majority of direct benefits became reality: reduction of transaction costs, transaction costs dropped partially, the Euro foreign exchange risk ceased to exist The global economic crisis has significantly supported the role of the Euro in protection from the financial crisis Despite better rating, potential indirect benefits (DFI growth, foreign trade and GDP growth) will only occur later Slide 3 May 2012

4. PwC Medium-term development of industrial production Industrial production index Slide 4 May 2012 Source: Eurostat

5. PwC The whole of Europe was concerned about the downfall of foreign trade Slide 5 May 2012 Source: Eurostat * January to July 2011

6. PwC Factors limiting industrial production Slide 6 May 2012 Factors limiting production in SK Source: European Commission Factors limiting production in EU

7. PwC Temporary deterioration in cost competitiveness of Slovakia Slide 7 May 2012 Exchange rate development Source: Eurostat, NBS calculations Industry labour cost development (in %)

8. PwC The Euro and competitiveness of SR The introduction of the Euro did not have a significant effect on the competitiveness of Slovakia The economic development is comparable with that in other EU countries and results from the global development of demand The price and cost competitiveness has deteriorated temporarily compared to our neighbours Adversely affected have been several service sectors Slide 8 May 2012

9. PwC The Euro brings stability Slide 9 May 2012 A stable currency increases overall economic stability and creates favourable conditions for long-term business decisions Source: ECB Monthly exchange rates volatility (in %)

10. PwC The Euro has improved trust Slide 10 May 2012 However, in the context of the current debt crisis, Slovakia is seen as a more risky country! Source: Bloomberg CDS* premium development in the V4 countries

11. PwC The debt crisis changes the viewpoint Slovakia did not participate in the original loan to Greece However, the amount of Slovak guarantee commitment in the European Financial Stability Facility (temporary fund) is € 7.73 billion (after the increase) The amount of guarantees in the European Stability Mechanism (permanent fund) is € 5.77 billion Total loan commitment of Slovakia arising from approved assistance to Ireland and Portugal is more than € 500 million In the extreme case, the exposure of Slovakia may achieve more than € 13 billion (ie. approximately 20 % of GDP in 2010) – however, the practical limit is € 8.6 billion in order that the firewall sustains the AAA rating Slide 11 May 2012

12. PwC The debt crisis was not caused by the introduction of the Euro but by the failure to meet the criteria for the Euro introduction! Low inflation Consolidated public sector finance Stable exchange rate Harmonised long-term interest rates Slide 12 May 2012

13. PwC Public debt in the Eurozone Slide 13 May 2012 Source: Eurostat

14. PwC Public deficit in the Eurozone Slide 14 May 2012 Source: Eurostat

15. PwC Effect of the reduction of market signalisation and fiscal irresponsibility Slide 15 May 2012

16. PwC Debt increase in the Eurozone countries Slide 16 May 2012 Source: Eurostat Public debt

17. PwC Simulation of the Maastricht criteria Slide 17 May 2012 Source: Eurostat, European Commission, NBS calculations InflationDeficitDebtInterestExchange rate 2011201220112012201120122011 BE3.52.7-3.7-4.297984.4€ FI3.33.0-0.751522.5€ FR2.32.2-5.8-5.385873.2€ GR3.1-0.5-9.5-9.315816621.1€ NL2.52.0-3.7-2.364 4.4€ IE1.21.6-10.5-8.81121188.7€ LU3.72.7-1.117192.2€ DE2.51.9-2.0-1.282811.9€ PT3.93.3-5.9-4.510210713.1€ AT3.62.4-3.7-3.374753.1€ ES3.11.3-6.3-5.368715.5€ IT2.9 -4.0-3.2120 6.8€ CY3.52.8-5.1-4.962647€ EE5.13.1-0.6-2.467-€ MT2.42.1-3.0 68 4.4€ SK4.11.9-5.1-4.645475.2€ SI2.11.6-5.8-5.043466.9€

18. PwC Non-sustainable interest expenses in some countries Slide 18 May 2012 Source: Eurostat Long-term interest rate 17,8

19. PwC Loss of competitiveness by the Eurozone peripheral countries Slide 19 May 2012 Unit labour costs (index 100=2000) Source: Eurostat, EC Current account (% of GDP)

20. PwC Prospects for development in Slovakia Slide 20 May 2012 Source: NBS, Slovak Statistics Authority, MF SR

21. PwC Comparison of EU countries’ growth prospects Slide 21 May 2012 Source: Consensus Economics Slovakia should still belong among the fastest growing countries

22. PwC New fiscal rules The Euro firewall 1 + 2 (EFSF / ESM) Explicit confession that Eurozone states are directly exposed to issues in other member states Explicit confession that the no- bail-out rule was only a bluff Slide 22 May 2012 Improved rules: 6-pack and a new Fiscal Treaty Reinforcement of Stability and Growth Pact Stronger preventive arm (attempt to achieve deficit from 0.5%, instead of 3% of GDP) Automatic penalties within the procedure of excessive deficit Stronger national rules – such as debt brakes New macroeconomic imbalance procedure

23. PwC New fiscal rules (2) Short-term effect Effect of assurance from Euro firewalls is prevailing Stronger protection of the Eurozone countries from speculative attacks o Protection only from problems arising from the lack of liquidity, not from insolvency Slide 23 May 2012

24. PwC New fiscal rules (3) Long-term effect The Eurozone firewall (permanent), in addition to insurance risk, also creates a risk of moral hazard – governments might also feel confident when the deficit is higher Better rules (6-pack, Fiscal Treaty) imposes strong pressure on governments to address their deficits and other imbalances The resulting effect should be greater motivation to consolidate the budgets Slide 24 May 2012

25. PwC Economic policies and introduction of the Euro Long-term benefits from the introduction of the Euro will occur only if supported by proper policies: Structural policies aimed at increasing flexibility of the economy – particularly creating conditions for a flexible labour market: o Flexibility of real (as well as nominal) wages o Geographic, sectoral, and professional mobility of jobs o Flexible employment and legal relationship Fiscal policy (balanced/ surplus budget, long-term sustainability) Slide 25 May 2012

26. PwC Summary The introduction of the Euro resulted in several direct benefits The price and cost competitiveness of Slovakia deteriorated temporarily (in selected services) The financial and debt crisis caused a reduction of direct benefits of the Euro; long –term benefits will occur later Failure by some countries to meet fiscal criteria caused the debt crisis Despite downward review, the Slovak economy should maintain a relatively fast pace of growth Slide 26 May 2012

27. Thank you for your attention © 2012 PwC. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Slovensko, s.r.o. and PricewaterhouseCoopers Tax, k.s., which are member firms of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.