Strategy of EURO application and influence of EURO in SR on trading and participants of the market Juraj Somorovský Viktor Maceják Juraj Molnár 2nd class,MPAK

EURO currency – past and present Eurozone – created with 15 member states which has adopted EURO 1999 – used only an accounting currency – replaced national currencies in 12 member states in EU issued by ECB – sole authority to set the monetary policy of EU All nations that have joined the EU since the 1993 implementation of the Maastricht Treaty have pledged to adopt the euro in due course

EURO currency – past and present Maastricht Treaty obliged current members to join the EURO, but the UK and Denmark negotiated exemptions Sweden turned down the EURO in referendum, and has circumvented the requirement by not meeting the membership criteria three European microstates Vatican city, San Marino and Monaco adopted the euro due to currency unions with member states Andorra, Montenegro and Kosovo have adopted the euro unilaterally, despite they are not member countries

Maastricht criteria and Slovakia When Slovakia wants to adopt EURO currency it is obliged to fulfill following criteria: Inflation rate Government finance Exchange rate Long – term interest rate

Inflation rate not higher than 1.5 percentage points than the three best-performing member states of EU (based on inflation) for example: (AUT 1.1%+ FRA 1.2% + IRL 1.2%)/3=1.2% 1.2% + 1.5% = 2.7% - inflation rate to adopt an EURO must be under 2.7% in August 2007 Slovakia fulfilled this criteria - inflation rate was on 1.9% nowadays the rate is on 2.9% but the criteria today is about 3.2% - meets the requirements

Government finance Annual government deficit: the ratio to GDP must not exceed 3% at the end of the preceeding fiscal year, if not, it needs to reach a level close to 3% only in exceptional excesses would be granted for exceptional cases Government debt: the ratio to GDP must not exceed 60% at the end of the preceeding fiscal year countries like FIN, FRA, LUX and GB did not fulfill this criteria SVK fulfilled this criteria, despite small problems with deficit

Exchange rate applicant countries should have joined the exchange-rate mechanism under the EMS for 2 consecutive years and should not have devaluate its currency during this period possible fluctuation of rate: +/- 15% first central rate was checked up to the mark of SKK/EUR second central rate was changed up to the mark of SKK/EUR

Long – term interest rate nominal long-term interest rate must not be higher than two percentage points than in the three lowest inflation member states. the purpose is to maintain the price stability within the Eurozone even with the inclusion of new member states the rate in Slovakia – 4.5%, maximal level from Maastrich criteria – 6.5% Slovakia fulfilled all criterias for adopt the EURO

Impacts of the common currency adoption in the Slovak Republic Positive impacts: such positives will permanently decrease the level of costs or increase GDP savings of enterprises and citizens on transaction costs will be the most visible when charges and margins for SKK/EUR exchanges will be eliminated consumers should profit from increased transparency and more intensive competition sector trade development between Slovakia and member states will be stabilized

Impacts of the common currency adoption in the Slovak Republic enterprises will save the exchange rate risk insurance costs elimination of the administration costs decrease of the real interest rates from 2 % to 1–1.5 % reduction of the bank services prices decrease of the exchange rate risk to the JPY, CHF, CZK, GBP and USD increased competition pressure among the producers of the goods exchange rate risk elimination

Impacts of the common currency adoption in the Slovak Republic Negative impacts: disadvantages of euro adoption include one-off costs of euro changeover and a permanent drawback of the loss of independent monetary policy one-off costs of currency conversion will be caused during the period of one to three years before joining the eurozone immediately after euro changeover loss of independent monetary policy will permanent disadvantage

Impacts of the common currency adoption in the Slovak Republic companies will face to tougher competition pressures decrease of the bank revenues from exchange transactions loss of independent monetary policy growth of the prices of the real estates decline of the interest rates will reduce the deposit yields savings will be converted from SKK to EURO by conversion exchange rate at the day convergence - savings depreciation

Conclusions Slovakia is a small, exceptionally open and a subsistent - depending economy economic growth of the Slovak Republic is relatively high considering the analysis, confrontation of positive and negative impacts of the current currency adoption on the SR indicates that the EURO would improve the situation along this line most crucial trading partners of our economy use EURO not only within the monetary union, but also in the trade with our enterprises - position of EURO in our economy is considerable already

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