1. 4. 20091. 4. 2009

VilniusVilnius

Euro Introduction in SlovakiaEuro Introduction in Slovakia

Martin ŠusterDirector of Research Department

2

Presentation OutlinePresentation Outline Plans and decisions Technical preparations Changeover

3

Plans and decisionsPlans and decisions

4

Importance of Euro for SlovakiaImportance 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 theMost of the Trade is in Trade is in €€

Non-€ EU24%

Non-EU Europe

6%

€-area63%

Other countries

7%

% Export (2007) Source: ŠÚ SR.

6

Benefits Exceed CostsBenefits Exceed Costs

long-run GDP increase by 7-20 %

0 0,1 0,2 0,3 0,4

costs

benefits

(% GDP)

financialtransaction costs

administrativetransaction costs

exchange raterisks

currencyconversion costs*

loss ofindependentmonetary policy

* for comparability with permanent effects the one-off conversion costs are split to 5 annual installments Source: NBS.

7

PreparationPreparationss started before the EU entry 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 PlansConsistent 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 DecisionMain 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 AdjustmentsMonetary Policy Adjustments 2004 decision: from implicit towards explicit

inflation targetingInflation 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 ReformPublic 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 – 2nd and 3rd capital pillars Price deregulations – major adjustment of relative

prices Social, healthcare and education system adjustments

Main Structural ReformsMain Structural Reforms

13

ERM II Entry 28. 11. 2005

Request for Euro area entry 5. 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 adoptionEuro adoption 1.1. 1.1. 20092009

CrucialCrucial decisionsdecisions

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CriterionMarch 2008

Reference value

State of Fulfillment

Inflation (average, %) 2.2 3.2 Interest rates (%) 4.5 6.5 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 Maastricht Criteria were Met with a Sufficient Marginwith a Sufficient Margin

Source: Eurostat, European Commission, MF SR, NBS.

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1.0

2.0

3.0

4.0

5.0

6.0

7.0

III.

05

V.0

5

VII

.05

IX.0

5

XI.

05

I.06

III.

06

V.0

6

VII

.06

IX.0

6

XI.

06

I.07

III.

07

V.0

7

VII

.07

IX.0

7

XI.

07

I.08

III.

08

V.0

8

VII

.08

IX.0

8

XI.

08

I.09

%

Reference value HICP inflation in SKK (12-month average)

Development of Reference Value Development of Reference Value and Inflation in Slovakiaand Inflation in Slovakia

Source: Eurostat.

1 p.p.

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„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 AreaSlovakia – 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

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Euro brings stability Euro brings stability a stable currency increases overall economic stability and generates

favorable conditions for long-term business decisions

85

90

95

100

105

110

115

120

125

130

I.0

8

II.0

8

III.

08

IV.0

8

V.0

8

VI.

08

VII

.08

VII

I.0

8

IX.0

8

X.0

8

XI.

08

XII

.08

I.0

9

II.0

9

III.

09

Ind

ex (

I.20

08=

100)

SKK CZK HUF PLN RONSource: ECB.

App

reci

atio

n of

the

curr

ency

Dep

reci

atio

n o

f th

e cu

rren

cy

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Technical PreparationsTechnical Preparations

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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 ConversionPrinciples of Euro Conversion

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National Euro Changeover PlanNational 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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National Coordinator (Ministry of Finance)

Working CommitteesBanks and financial Public administration and sector local governments

Information systems Business sector and consumer and statistics protection

Legislation Communication

National Coordinating Committee

gvt. plenipotentiary

Institutional Framework of Institutional Framework of €€ Introduction Introduction

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Frontloading of euro cashFrontloading of euro cash

Businesses ATMs

Commercial banks

NBS

Frontloading

Sub-frontloading

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Sub-frontloadingSub-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 SystemConsumer 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 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 codeEthical 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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Preparationstill June 2007

Starttill July 2008

Intensive campaignJuly 2008 – 1.1.2009

Finish – year 2009

CommunicationCommunication

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

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ToolsTools 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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32

33

34

35

36

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ChangeoverChangeover

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New Year / Euro Adoption CelebrationsNew Year / Euro Adoption Celebrations

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0%

20%

40%

60%

80%

100%

120%

21:0

0

21:1

5

21:3

0

21:4

5

22:0

0

22:1

5

22:3

0

22:4

5

23:0

0

23:1

5

23:3

0

23:4

5

0:00

0:15

0:30

0:45

1:00

1:15

1:30

1:45

2:00

8:00

Conversion of ATMsConversion 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 ExchangeCash Exchange Till 16.1.2009 – dual

circulation – both SKK and EUR

Exchange in banks notes till 31.12.2009 coins till 30.6.2009no-fee limit: up to at

least 100 pieces Exchange in NBS

notes forever coins till 31.12.2013no fees, cash must be

counted and sorted

41

Dual circulation period - payments Dual circulation period - payments

Source: EC.

102

9693

77

63

48

28

16

8778

64

452718

10

102030405060708090

100

1.I 2.I 3.I 4.I 5.I 6.I 7.I 8.I 9.I 10.I 11.I 12.I 13.I 14.I 15.I

shar

e (

%)

Payments in SK Payments in €

Share of payments in koruna and euro

42

Dual circulation period – cash in walletsDual circulation period – cash in wallets

Source: European Commission.

9795

2432

44

56

76

909896

88

82

63

48

3629

0102030405060708090

100

1.I 2.I 3.I 4.I 5.I 6.I 7.I 8.I 9.I 10.I 11.I 12.I 13.I 14.I 15.I

shar

e (%

)

Mostly or only euro banknotes Mostly or only euro coins

Share of euro coins and banknotes in wallets

43

Dual Circulation Period (Change in Dual Circulation Period (Change in €€))

Source: Eurobarometer.

Change given in euro

0

10

20

30

40

50

60

70

80

90

100

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.

Malta Cyprus Slovenia Slovensko

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Koruna Cash in Circulation Koruna Cash in Circulation

Source: NBS.

0

20

40

60

80

100

120

140

160

1.IX 1.X 1.XI 1.XII 1.I

(bil

. SK

K)

45

0

10

20

30

40

50

60

70

80

90

100

IX.04 I.05 V.05 IX.05 I.06 V.06 IX.06 I.07 V.07 IX.07 I.08 V.08 IX.08 I.09

Information about euro is sufficient / more sufficient than not Source: ŠÚSR.

Information LevelInformation Level

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Support for the EuroSupport for the Euro

0

10

20

30

40

50

60

70

80

90

Sept (-4) Apr (-3) Sept (-3) Apr (-2) Sept (-2) Apr (-1) Sept (-1) Mar(+1)

SK SI MT CY

Source: Eurobarometer, ŠÚSR (ex-post survey in Slovakia).

47

Fears - Price increasesFears - Price increases

0

10

20

30

40

50

60

70

80

90

Sept (-4) Apr (-3) Sept (-3) Apr (-2) Sept (-2) Apr (-1) Sept (-1) Jan (+1)

SK SI MT CY

Source: Eurobarometer.

48

ConclusionConclusion 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 Thank you for your attentionfor your attention

2€ 1€

50, 20, 10 c 5, 2, 1 c