Euro Introduction in Slovakia

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Euro Introduction in Slovakia

• Martin uster
• Director of Research Department

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Presentation Outline

• Plans and decisions
• Technical preparations
• Changeover

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Plans and decisions
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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)

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Most of the Trade is in
Export (2007)
Source Ú SR.
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Benefits Exceed Costs
for comparability with permanent effects the
one-off conversion costs are split to 5 annual
installments
Source NBS.
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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

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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
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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???

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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?

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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

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Main Structural Reforms

• Tax system reform flat tax, very simple system
• Pension reform 2nd and 3rd capital pillars
• Price deregulations major adjustment of
  relative prices
• Social, healthcare and education system
  adjustments

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Crucial decisions
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Maastricht Criteria were Met with a Sufficient
Margin
Year 2007
Source Eurostat, European Commission, MF SR, NBS.
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Development of Reference Value and Inflation in
Slovakia
1 p.p.
Source Eurostat.
16
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.
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.
Source press releases of EC and NBS, 8 July 2008.
1 30.1260 Sk
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Euro brings stability

• a stable currency increases overall economic
  stability and generates favorable conditions
  for long-term business decisions

Depreciation of the currency
Appreciation of the currency
Source ECB.
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Technical Preparations
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Principles of Euro Conversion

• 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

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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

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Institutional Framework of Introduction
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Frontloading of euro cash
NBS
Frontloading
Commercial banks
Sub-frontloading
Businesses
ATMs
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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.

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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, Ú SR, ...)
• Monitoring of selected prices by Ú SR on 2nd and
  5th 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)

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Ethical code

• Main commitment euro will not rise prices
• Calls on enterprises to join radio, prints,
  internet
• 3000 members
• Over 20 000 shops

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Communication
Preparations till June 2007
Start till July 2008
Intensive campaign July 2008 1.1.2009
Finish year 2009
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Objectives

• Everybody should be informed (in appropriate
  form and extent)
• Informative and educational campaign, not
  persuasive
• Practical, Simple
• Main target group General Public

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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

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Target Groups

• General Public
• Children
• Youth
• Elderly
• Blind / Partially sighted
• Deaf / Hearing impaired
• Minorities (Hungarian, Roma)
• SMEs
• Government / Local governments

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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

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Changeover
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New Year / Euro Adoption Celebrations
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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).

Share of operating ATMs
Source NBS.
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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

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Dual circulation period - payments
Share of payments in koruna and euro
Source EC.
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Dual circulation period cash in wallets
Share of euro coins and banknotes in wallets
Source European Commission.
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Dual Circulation Period (Change in )
Source Eurobarometer.
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Koruna Cash in Circulation
Source NBS.
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Information Level
Information about euro is sufficient / more
sufficient than not Source ÚSR.
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Support for the Euro
Source Eurobarometer, ÚSR (ex-post survey in
Slovakia).
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Fears - Price increases
Source Eurobarometer.
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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

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Thank you for your attention
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