(Repeats story from Monday)
By Michael Winfrey
BRATISLAVA, Sept 22 (Reuters) - European Central Bank
President Jean-Claude Trichet welcomed Slovakia as a future euro
zone member on Monday but said its entering the area could fuel
inflation that could derail it from sustainable convergence.
Slovakia will become the second ex-communist state after
Slovenia to adopt the common currency on Jan. 1. It is still
poorer than most euro zone members with around 72 percent of the
area's average GDP per capita.
By taking on the euro and ECB monetary policy, the
fast-growing economy hopes to boost growth and enjoy greater
currency stability, but also risks catching up with the richer
West by the prices of goods climbing to euro zone levels.
"Our main concern is that Slovakia, being a catching-up
economy, is likely to face inflationary pressures that could
derail the economy from a sustainable convergence path after
euro adoption," Trichet said in a speech in the Slovak capital.
"Top priority must therefore be given to the sustainable
economic convergence ... It will require major efforts in the
years to come from all parties concerned."
Slovak inflation was running at 4.4 percent in August, and
many Slovaks fear price pressure will rise -- as they did in
regional peer Slovenia, which joined the euro in 2007 -- once
they have euros in their wallets.
Slovenia's inflation soared to 6.9 percent in July, by far
the highest in the euro zone, before retreating to 6 percent in
August. Price growth for the euro zone as a whole was 3.8
percent last month.
REFORMS NEEDED
Trichet said Slovakia should continue reforms, including
cutting its budget deficit and liberalising its labour market.
European Commissioner for Economic and Monetary Affairs Joaquin
Almunia agreed.
"This is not the end of the road. Slovakia needs to remain
committed to sound policies, particularly in the fiscal and
structural domain," he said.
Earlier this year, an opinion poll showed nearly three
quarters of Slovaks worried that euro adoption would make their
lives more difficult.
Prime Minister Robert Fico has tried to calm those fears by
threatening to jail retailers who would try to take advantage of
the switchover to raise prices, and warning foreign owners of
utilities the state may re-nationalise their holdings if they
overcharge people on energy bills.
Finance Minister Jan Pociatek said the government would
continue cutting the fiscal deficit and the country aims to have
balanced public finances for the first time ever in 2011.
Government policies will be key in efforts to tame inflation
after Slovakia falls under the common euro zone monetary policy.
"At this moment, the main challenge is fighting inflation,
and we have used this opportunity to assure everyone again that
it is an earnest fight from our side," Pociatek said.
Fico, however, said welfare policies were equally important
as fiscal consolidation. The government, benefitting from GDP
growth of 10.4 percent last year, plans to boost spending on the
poor in the second half of its term ending in 2010.
(Additional reporting by Peter Laca)
