(adds Slovak crown rise)
By Marcin Grajewski
BRUSSELS, Feb 12 (Reuters) - Slovakia's finance minister
said on Tuesday his country was on track in its bid to join the
euro zone in 2009 and he did not see any problem with inflation.
"Everything is under control. I don't see anything
unexpected about Slovak inflation compared with the euro zone,"
Jan Pociatek told Reuters before a meeting of European Union
finance ministers due to discuss his country's budget plan to
meet euro entry criteria.
In a decision closely watched by markets as a precedent for
the whole of central Europe, the Commission is to recommend
whether Slovakia, which joined the European Union in 2004, is
ready to enter the euro zone on Jan. 1, 2009.
Senior EU officials and diplomats say they expect Slovakia's
candidacy to become the 16th country to adopt the single
currency to be approved in May, provided it continues to meet
the criteria, notably on inflation.
"Our message to Slovakia is 'do your homework between now
and May'," a senior EU source said, noting that the Commission
and finance ministers were not discouraging Bratislava from
applying, as they did in 2005 with Lithuania.
The Slovak crown rose to a two-month high against the euro
on Tuesday on market rumours of a possible revaluation of the
unit in the ERM-2 exchange rate mechanism, a band within which
euro applicants must keep their currency before joining the euro
zone.
But the senior EU source said Brussels considered the right
homework for Bratislava involved strict fiscal policy and more
structural reforms rather than revaluing the crown upwards
against the euro.
In its assessment of Slovakia's so-called convergence
programme, the European Commission said last month that
Bratislava should adopt additional fiscal measures to counter
inflationary pressures after euro zone entry.
Central bank Governor Ivan Sramko said in response that the
assessment pointed to risks that are already known.
"The report brings nothing fundamentally new, it points to
risks which I think are well-enough known in Slovakia," he told
reporters on Jan. 30.
German Finance Minister Peer Steinbrueck, asked on Tuesday
about Slovakia's prospects of joining the euro, told reporters:
"It's up to the ECB and the Commission to assess that under the
rubric of equal treatment for all candidates. They will submit a
report on this in May."
Sramko repeated his long-held stance that the Slovak central
bank had a different view to the European Commission on the
possible inflation risks from economic growth and on the effect
of crown strengthening on consumer prices.
The EU executive said existing inflationary pressure from
rising oil and food prices could mount due to the fading effect
of the crown's past appreciation.
"The (Slovak) government should stand ready to adopt a
tighter fiscal stance than that envisaged in the programme," it
said.
The government of leftist Prime Minister Robert Fico wants
to bring the overall public finance deficit down to 0.8 percent
of gross domestic product in 2010, including the cost of pension
system reform, from 2.3 percent planned for this year.
The Commission said Slovakia would meet the euro entry
criterion on the budget shortfall, which a euro aspirant must
keep below 3 percent of gross domestic product.
"Slovakia's planned budgetary consolidation is consistent
with a correction of the excessive deficit in 2007," said
Monetary Affairs Commissioner Joaquin Almunia.
"But looking beyond the correction of the excessive deficit,
faster progress towards the medium-term objective is advised, in
particular to contain possible inflationary pressures."
The Commission also confirmed its November forecast that
Bratislava would meet the criterion on inflation nominally. EU
officials say the only hurdle for euro entry next year could be
if the Commission assesses that Slovakia does not meet the
inflation criterion in a sustainable manner.
(reporting by Marcin Grajewski, writing by Paul Taylor, editing
by David Christian-Edwards)
