NÁRODNÁ BANKA SLOVENSKA Slovakia and the Euro: Mission Completed Ódor Lajos Member of the Bank Board

NÁRODNÁ BANKA SLOVENSKA

Slovakia and the Euro: Slovakia and the Euro: Mission Completed Mission Completed

Ódor LajosMember of the Bank Board

December 2008 2Budapest

OutlineOutline

Once Laggard, Now Leader Costs and Benefits Crisis and the Euro: Is it Better to be Inside? Main Lessons for Floaters Policy Advice


Once Laggard, Now LeaderOnce Laggard, Now Leader

No one wanted to lag behind again in 2003 Successful structural reforms Good luck Political consensus enforced also by financial

markets Consistent and realistic plans - no deviation

from initial target date 2008/2009


Important Milestones Important Milestones


Policy ChoicesPolicy Choices

Credible fiscal consolidation – focus on the expenditure side

Structural reforms have increased the growth potential nad flexibility of our economy

Flexible inflation targeting regime with one eye on the exchange rate


Benefits Exceed CostsBenefits Exceed Costs

long-run GDP increase by 7-20 %

0 0,1 0,2 0,3 0,4

costs

benefits

(% GDP)

financialtransaction costs

administrativetransaction costs

exchange raterisks

currencyconversion costs*

loss ofindependentmonetary policy

* for comparability with permanent effects the one-off conversion costs are split to 5 annual installments


Euro Brings StabilityEuro Brings Stability stable currency increases overall economic stability and creates

favourable conditions for long-term business decisions

80

85

90

95

100

105

110

115

120

X.0

7

XI.

07

XII

.07

I.0

8

II.0

8

III.

08

IV.0

8

V.0

8

VI.

08

VII

.08

VII

I.0

8

IX.0

8

X.0

8

Ind

ex (

X.2

007=

100)

SKK CZK HUF PLN RONSource: ECB

App

reci

atio

nD

epre

ciat

ion

December 2008 8Budapest 8

Main Lessons for FloatersMain Lessons for Floaters

Fulfillment of backward-looking indicators necessary but not sufficient

Euro brought us many benefits even before the entry date

ERMII and managed floating are friends, not foes

Do not rely on equal treatment

Qualitative assessment important; no definition of sustainability


Policy Advice (1)Policy Advice (1)

Political consensus is good for markets – vital for stable policy path (euro preparations take longer than one government office trem)

Carry out structural reforms before eurozone entry

Communicate, communicate, communicate

Ask for sustainability assessment at ERM II entry

Prepare your ERMII commitments very carefully

Use maximum band in ERMII, do not fix


Policy Advice (2)Policy Advice (2)

Prepare escape clauses

Be aware of speculative capital inflows in ERM II (one-way bets)

Transparency in public accounts is a must

Have a list of credible measures to support fiscal prudence

Have a solid asessment of cyclical position, ER pass-through, labour market tensions and regulated prices



Thank you for your attention!Thank you for your attention!

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NÁRODNÁ BANKA SLOVENSKA Slovakia and the Euro: Mission Completed Ódor Lajos Member of the Bank Board