Dec 12 (Reuters) - Slovakia will enter the euro zone on Jan. 1 as the first
of the larger ex-communist European Union members in central Europe.
The following are key facts on Slovakia, its economy and
its performance with regard to the euro entry criteria.
POPULATION: 5.4 million
GEOGRAPHY: Slovakia is a mountainous country in central
Europe bordering Poland, the Czech Republic, Austria, Hungary
and Ukraine.
GOVERNMENT: Prime Minister Robert Fico, a Social Democrat,
took over from a centre-right government after winning a 2006
election on pledges to take better care of the poor.
GROWTH: Gross domestic product (GDP) rose by 10.4
percent in 2007 in real terms. The EU's statistics service, Eurostat, estimates
GDP per head reached 67.7 percent of the EU average in 2007, in purchasing power
standards.
Slovakia has had one of the highest economic growth rates in
the European Union since joining in 2004, mainly thanks to
investments in export-oriented industries such as cars and
electronics.
Growth forecasts for the next year have been slashed to 4.6 percent amid
weakening demand in the country's main trading partners.
AVERAGE WAGE: 21,226 Slovak crowns (705 euros)
MEETING THE MAASTRICHT CRITERIA FOR EURO ENTRY:
INFLATION: The 12-month average inflation rate to March 2008, which was used
for euro adoption assessment, was 2.2 percent, well below the threshold of 3.2
percent.
The inflation threshold was 1.5 percentage points above the
average of the three lowest inflation rates in the European
Union.
Inflation has since shot up and fallen back to 4.2 percent, cooled by the
slowing economy and falling oil prices.
FISCAL DEFICIT AND DEBT: The government has benefited from
fast economic growth, which has boosted state revenues and let
the cabinet increase welfare spending while cutting the public
finance deficit.
The European Commission has urged Slovakia to tighten fiscal
policy to help counter inflation pressures after euro adoption.
The 2007 fiscal gap was 2.2 percent of GDP, well under the
2.9 percent target and below the 3 percent euro adoption limit.
The government has said it will not meet the revised target of 2008 public
finance deficit of 2.0 percent of GDP that it had pledged in spring to boost
euro adoption chances, citing the impact of the global financial crisis as the
reason. The cabinet now expects a deficit of 2.3 percent of GDP this year.
Next year the government targets a deficit of 2.1 percent.
Slovak gross public debt, at 29.4 percent of GDP at the end
of 2007, has been comfortably below the euro adoption limit of
60 percent of GDP since Bratislava used part of past
privatisation revenues to repay obligations.
INTEREST RATES: The central bank estimated the 12-month
average long term interest rate at 4.5 percent at the time of
euro entry assessment, while it saw the euro entry threshold at
6.4 percent.
The official two-week repo rate is 2.50 percent, matching the euro zone
borrowing costs. The Slovak central bank cut rates by a cumulative 175 basis
points in three moves in the past three months after the European Central Bank
slashed its rates sharply in the wake of the financial crisis.
CURRENCY STABILITY: The crown <EURSKK=> has been in the
ERM-2 exchange rate mechanism since November 2005. The central
parity rate was revalued twice since the local unit was pegged
to the single currency in the ERM-2 currency grid.
The latest parity revaluation was by 15 percent, in crown
terms, to 30.1260 crowns per euro in May. The ERM-2 parity rate was used at the
switchover rate for the euro zone entry.
The central bank has intervened both against sharp crown
appreciation and weakening since the crown entered the ERM-2.
(Compiled by Peter Laca and Martin Santa; Edited by Andy Bruce)
