(Updates with details, background)
By Marcin Grajewski
LUXEMBOURG, June 3 (Reuters) - European Union finance
ministers gave Slovakia the green light on Tuesday to join the
euro zone on Jan. 1, 2009, urging the country to be ready to
fight inflation with tight fiscal policies, a diplomat said.
A letter, seen by Reuters, that the ministers will give to
their leaders ahead of an EU summit this month said Slovakia met
all criteria to become the euro zone's 16th member, despite
European Central Bank concern over the country's inflation.
Slovakia will become the fourth of the bloc's new members
that have joined the EU since 2004 to adopt the euro. Much
smaller Slovenia entered the single currency zone in 2007,
followed by Cyprus and Malta this year.
"The ministers share the (European) Commission assessment
that Slovakia has achieved legal compatibility and a high degree
of sustainable convergence, and therefore fulfils the necessary
conditions for the adoption of the euro," the letter said.
"They underline the need for Slovakia to be vigilant and to
implement budgetary and structural policies supportive of price
stability," it added.
EU leaders are now certain to give Slovakia the political
green light at the June 19-20 summit to adopt the euro.
EU finance ministers will in early July give the final
blessing for the ex-communist country's euro adoption by setting
the final exchange rate between the Slovak crown <SKK=><EURSKK=>
and the single currency.
Slovakia revalued the crown's central parity rate last week
in the ERM 2, an exchange rate system that is a proving ground
for the euro, by 15 percent in local terms and 17.6472 percent
in international terms to 30.1260 to the euro.
Many analysts expect the new central parity rate to become
the final conversion rate for the crown.
The European Commission, the EU's executive arm, said last
month that Slovakia, a country of 5.4 million people, was ready
for the euro unlike bigger EU newcomers Poland, Hungary and the
Czech Republic.
It brushed aside ECB concerns about the country's ability to
keep inflation in check in a sustainable way, the most vague
among euro entry criteria.
Other criteria involve having a budget deficit, if any,
below 3 percent of gross domestic product, public debt below 60
percent of GDP, sufficiently low long-term interest rates and a
stable currency in the ERM 2 system.
In the ERM 2, a currency is allowed to fluctuate by +/-15
percent around the central parity rate.
Some German members of the European Parliament urged the
ministers last week to reject Slovakia's euro bid on grounds
that its currency had not been stable in the ERM 2 -- two
revaluations being the evidence.
But under EU rules, revaluation is permitted unlike
devaluation, which can be a reason for rejecting a candidate's
euro entry application.
(Editing by Dale Hudson)
