Slovenian Approach to EMUSlovenian Approach to EMU
Boštjan JazbecMember of the Governing Board
The views expressed herein are those of the author and not necessarily those of the Bank of Slovenia.
ContentsContents
• Macroeconomic Stabilization and Transition• Macroeconomic Perfomance• Maastricht Criteria• Entry to ERM2 and Adoption of Euro• Conclusions
Macroeconomic Stabilization and Macroeconomic Stabilization and TransitionTransition
• Better initial conditions than in other transition economies• Money-based stabilization program• Rehabilitation of the banking sector• Sound macroeconomic performance• Inflation
GDP per capitaGDP per capita
GDP per capita (EU(12) = 100, at PPS, 2001, in %)
198,0 119,1 118,9 112,6 106,8 105,1 105,0 104,5 104,2 102,2 100,2 82,6 73,2 57,5 51,2 47,9 39,9
69,1
100
100,4
0
20
40
60
80
100
120
140
160
180
200
Lux
embo
urg
Den
mar
k
Irel
and
Aus
tria
Net
herla
nds
Bel
gium
Finl
and
Ital
y
Ger
man
y
Swed
en
Fran
ce
EU
15
Uni
ted
Kig
dom
Eur
o ar
ea
Spai
n
Por
tuga
l
Slov
enia
Gre
ece
Cze
ch R
epub
lic
Hun
gary
Slov
akia
Pol
and
113,9113,9 68,3
Openness Openness (exports and imports in % GDP)(exports and imports in % GDP)
Export and import shares in GDP (2001; in %)
287,1 181,6 167,2 125,3 84,8 84,6 72,9 71,7 68,3 56,6 54,973,1
120,5
54,361,5
70,7
0
50
100
150
200
250
300
Lux
embo
urg
Irel
and
Bel
gium
Net
herla
nds
Slov
enia
Aus
tria
Den
mar
k
Swed
en
Eur
o ar
ea
Por
tuga
l
Finl
and
EU
15
Ger
man
y
Spai
n
Uni
ted
Kin
gdom Ital
y
Fran
ce
Gre
ece
104,9 52,5
Foreign Trade with EU Foreign Trade with EU (in % of export and import, 2001)(in % of export and import, 2001)
76,9 72,9 69,6 67,1 65,7 64,3 59,4 59,3 55,866,4 55,0
61,061,7
55,358,90
10
20
30
40
50
60
70
80
Por
tuga
l
Bel
gium
,L
uxem
bour
g
Spai
n
Den
mar
k
Aus
tria
Net
herla
nds
Fran
ce
Slov
enia
EU
Swed
en
Irel
and
Finl
and
Ital
y
Ger
man
y
Gre
ece
Government DeficitGovernment Deficit
Government deficit (% GDP, 2002)
4.7 2.6 1.9 1.2 0.0
-0.1 -0.1 -0.6 -1.2 -1.4 -2.2 -2.7 -3.6 -4.2 -6.5
-3.0
-9.1-1.1 -3.1-2.3
-1.8
-10-9-8-7-6-5-4-3-2-1012345
Fin
land
Lux
embo
urg
Den
mar
k
Sw
eden
Bel
gium
Spa
in
Irel
and
Aus
tria
Net
herla
nds
Gre
ece
Uni
ted
Kin
gdom
Slo
veni
a
Eur
o ar
ea
Ital
y
Por
tuga
l
Con
verg
ence
crit
.
Fra
nce
Ger
man
y
Pol
and
Cze
ch R
epub
lic
Hun
gary
Government DeficitGovernment Deficit
Government balance (% BDP; 2001, ESA 95)
6,1 5,2 0,9 0,6 0,0
-0,3 -1,5 -1,6 -4,2
0,6
-1,5-0,9
-2,8-2,6
-2,8
-5
0
5
10
Lux
embo
urg
Finl
and
Irel
and
Bel
gium
Aus
tria
Net
herl
ands
Spai
n
EU
15
Gre
ece
Fran
ce
Eur
o ar
ea
Ital
y
Slov
enia
Ger
man
y
Por
tuga
l
Public Debt Public Debt (% GDP; ESA95)(% GDP; ESA95)
Public debt (% GDP; 2001)
5,6 36,4 39,1 43,4 44,7 52,8 55,5 56,6 57,1 57,3 109,8107,069,2
63,1
33,6
107,663,259,50
20
40
60
80
100
120
Lux
embo
urg
Slov
enia
Irel
and
Uni
ted
Kin
gdom
Finl
and
Den
mar
k
Net
herl
ands
Por
tuga
l
Swed
en
Spai
n
Fran
ce
Ger
man
y
EU
15
Aus
tria
Eur
o ar
ea
Gre
ece
Bel
gium Ital
y
Price LevelPrice Level
Price level (EU(12) = 100, 2001, in %)
127,5 116,4 115,3 113,1 113,1 112,0 105,3 95,3 90,9 76,5 50,5 42,1 35,8109,8
100,0
42,1
66,3
85,40
20
40
60
80
100
120
140
Fin
land
Irel
and
Lux
embo
urg
Ger
man
y
Fra
nce
Bel
gium
Aus
tria
Net
herla
nds
Eur
o ar
ea
Ital
y
Spa
in
Gre
ece
Por
tuga
l
Slo
veni
a
Pol
and
Cze
ch R
epub
lic
Hun
gary
Slo
vaki
a
Relative Price ConvergenceRelative Price Convergence
Y-on-Y Final Quarter InflationY-on-Y Final Quarter Inflation
Maastricht CriteriaMaastricht Criteria
Synchronization of Business CyclesSynchronization of Business Cycles
GDP Composition by ActivityGDP Composition by Activity
Financial SectorFinancial Sector
Banking Sector by Total AssetsBanking Sector by Total Assets
Slovenia Slovenia vs.vs. Greece Greece vs.vs. PortugalPortugal
Disinflation Trend in SloveniaDisinflation 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.
0
5
10
15
20
25
30
1994 1996 1998 2000 2002 2004
inflation (SA) stylized inflation trend
Exchange Rate Pass-ThroughExchange Rate Pass-Through
0
5
10
15
20
25
30
1994
1995
1996
1997
1998
1999
2000
2001
CPI DEM/SIT Poly. (CPI) Poly. (DEM/SIT)
ERM2 - Why as Early as Possible?ERM2 - Why as Early as Possible?
• Are there any reasons to wait?• Can small open economy run independent monetary policy?• Sound macroeconomic performance
ERM2 RisksERM2 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 MixERM2 Policy Mix
Joint program between BoS and the Slovenian Government from Nov. 2003.
• 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
ConclusionsConclusions
Wish us all the best.
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