Marian Jusko: Approaching the euro
Speech by Mr Marian Jusko, Governor of the National Bank of Slovakia, at the Conference
"Challenges of EU Accession", Prague, 1 April 2003.
* * *
Ladies and Gentlemen,
I welcome the opportunity to address you tonight and I would like to thank the CNB for including me
into this panel, where I can speak and discuss the most challenging and demanding topic, which is the
EMU accession.
We all, central bankers, know that the main role will not be played by us, but crucial will be the
decision and actual steps of national governments.
Let me present the views and approach of the National Bank of Slovakia, which, however, cannot be
considered as the official statement of the Slovak Republic. Nowadays, there is the joint strategy of the
central bank and the government under preparation, which will be approved by the Slovak
Government in the second quarter and which will also be a part of our PEP (pre-accession economic
programme). The intention here is to officially announce the term of our preparedness for examination,
which also serves as the yardstick and anchor for all our current and future decisions.
The general approach of the NBS, which can be slightly (in terms of its schedule) modified by our
government, is the earliest possible approach towards the euro adoption and EMU membership. At the
same time, we prefer the shortest possible membership in the ERM II mechanism.
The main idea behind the formulation of the earliest possible strategy of EMU accession is our belief
that Slovakia may enter the EMU earlier, but must not become a member of the eurozone later than
other associated countries. This is based on our latest experience, when we were treated as an
outsider in the second wave of the EU, OECD and NATO enlargement, with a long lasting effect on
FDI inflows, costs of debt service and the overall macroeconomic development.
I do not want to bother you with all these well-known and clear reasons for entering the EMU, which
are, above all, the savings on transaction costs and a decline in the exchange rate volatility and
exchange rate risk. This is extremely important for Slovakia with its high level of openness. The share
of exports and imports of goods and services in GDP increased to 156.5% in 2001 from 117.3% in
1993, while 60% of exports and 50% of imports were related to EU countries in 2001. After including
the CEC5, these shares would increase to 89% for exports and 71% for imports. Considering the large
share of the Slovak foreign trade in GDP and the territorial structure of the foreign trade, the probable
positive impact of the increased openness due to the EMU membership (an estimated increase of
1.6 percentage points) on the GDP per capita growth may oscillate around 1%.
We are also aware of disadvantages which could be connected with the EMU membership. Among
frequently mentioned disadvantages of the euro adoption belong the ongoing process of catching up
with EU levels, the insufficiently synchronised business cycles and the loss of the exchange rate
stabiliser. Along with this, we get the common monetary policy which is doubtful to fit to all, especially
to a country with structural changes still ahead.
With regard to the above mentioned possibly problematic areas, in our view, the real and nominal
convergence can be seen as complementary to each other, and should be pursued in parallel. Over
the short period of time, a contradiction between the real and nominal convergence has become
evident where GDP growth could slow down. However, at the same time, conditions for more dynamic
and, mainly, sustainable growth will be created. Under these conditions Slovakia has a potential for
the GDP grow of around 4-5% in the medium term.
Regarding the independent monetary policy and the automatic stabiliser of the exchange rate, let me
ask the question: Is it possible, in such a small and open country, that they would work freely and
independently?
I can openly say that we do not see any serious problem in meeting all Maastricht criteria in the
medium-term horizon. However, what could negatively effect fulfilment of fiscal criteria and slightly
postpone the process of integration is the treatment of the pension reform expenditures, which is now
also in question in many associated as well as member countries.
In the end, let me stress that there is a strong incentive and first steps have already been carried out in
the area of structural reforms, particularly those related to the pension, health-care and social benefits
policies, and decentralisation. The price distortions are expected to narrow in 2004. The plan of the
Ministry of Finance is to lower the fiscal deficit from around 6% in 2002 to 5% in 2003 and to 3,4% in
2004, so that Slovakia could be ready for the examination in 2005 or 2006.
Thank you for your attention.