By Martin Santa
BRATISLAVA, Dec 12 (Reuters) - Slovak firms have welcomed the country's Jan.
1 euro zone entry plans as a move that will remove uncertainty after years of
wrangling with a volatile currency and new pressure from the global economic
crisis.
Slovakia will become the 16th member of the currency area -- the first of
the larger ex-communist EU members to do so -- in January, capping a
transformation in which it lured billions of euros from foreign investors this
decade with a cheap workforce, low taxes and proximity to eastern and western
markets.
"First of all, the euro means price stability, both in relations with our
clients in the euro zone and our business relations with suppliers localised in
the euro zone countries," Jean Mouro, CEO of PSA Peugeot Citroen in Slovakia
told Reuters.
Beside PSA's factory, making 200,000 cars a year, other big projects include
car assembly plants owned by Kia Motors <000270.KS> and electronics factories of
Samsung <005930.KS> and Sony <6758.T>.
All look forward to euro adoption because they export most of their
production and import large volumes from suppliers.
But while investments into car and electronics factories have fuelled
Slovakia's convergence with more developed EU members, those industries are now
facing the full brunt of the financial crisis and the collapse in western
consumer demand.
In October, production in the auto industry fell 12.8 percent annually, the
first decline since April 2006.
That poses a serious problem. Cars alone make up more than 20 percent of
Slovak exports, and they helped drive growth here to a record 10.4 percent last
year. Now, the collapse in western car sales looks set to cause a swing in the
other direction.
But exporters are still taking consolation in the euro.
Having been hurt by a rapid rise of the crown in the euro zone buildup, they
have been shielded from foreign exchange losses since July, when Slovakia set
its rate for the switchover to the single currency at the historically strongest
level of 30.1260 crowns per euro.
"In general, it will reduce costs related to swift changes of the euro-crown
exchange rate, especially in the last few years when the crown had been
appreciating rapidly," said Mouro.
At the time of uncertain economic outlook, the euro brings an additional
benefit of lower production costs, as weakening economic activity puts lid on
price growth, businesses said.
"We evaluate Slovakia's transition to the common European currency solely as
a positive factor," said Katarina Holecova, a spokeswoman for Samsung factory in
Slovakia.
"In relation to the financial crisis, euro adoption may bring a positive
impact in terms of softer inflation pressures, and thus, indirectly, savings in
material or wage costs."
(Editing by Andy Bruce)
