Slovaks united by euro ambitions: Barát

COMMUNICATION is more important than ever for Slovakia, with a year to go before it has to pass the preparedness test for joining the eurozone, said Igor Barát, Slovakia's government proxy for the introduction of the euro. Slovakia has to communicate intensively with EU institutions and convince the European Commission and the European Central Bank that it's ready.

Euro proxy Igor Barát.
photo: TASR

COMMUNICATION is more important than ever for Slovakia, with a year to go before it has to pass the preparedness test for joining the eurozone, said Igor Barát, Slovakia's government proxy for the introduction of the euro. Slovakia has to communicate intensively with EU institutions and convince the European Commission and the European Central Bank that it's ready. At the same time, the country has to effectively convey its euro messages to the business community and citizens so that the conversion causes as few complications as possible.

In an interview with The Slovak Spectator, Barát also shared his thoughts about the country's chances of meeting the Maastricht criteria, the euro information campaign and Slovakia's prospects of keeping the entry schedules.

The Slovak Spectator (TSS): The post of the National Bank of Slovakia's vice-governor for euro adoption was vacant for 15 months before Viliam Ostrožlík took up his post about a month ago. Slovakia had no proxy for euro introduction for more than half a year before you were appointed. Have these delays affected the process of euro adoption?

Igor Barát (IB): I reject the speculation that the delay in appointing the vice-governor for euro adoption caused any delay in the euro preparations. The powers and responsibilities of the vice-governor had been divided among other members of the National Bank of Slovakia bank board during the period when the post was vacant.

As for the government proxy post, similarly, all the working committees and the bodies established by the National Plan were functioning even during the period it was vacant.

Time will tell whether Slovaks like real euros as much as they like the chocolate ones.
photo: TASR

These delays had an impact on the postponed selection of the communications agency to run the euro information campaign. But the postponement was not solely caused by the vacant government proxy position. There were also other complications involved in the tender for the selection of the communications agency. (The tender had to be cancelled twice -Ed. note.) But delays in selecting the communications agency have had no impact on the campaign itself. The campaign is scheduled to start next year and it will culminate only after the European institutions decide on Slovakia's entry to the eurozone and set the crown-euro conversion exchange rate.

The General Bill on Euro Adoption was submitted to the cabinet session one month later than originally planned, this July. But this was caused by a justified need to thoroughly prepare the law that the European Central Bank is currently reviewing. We will most probably get the ECB comments at the beginning of September.

Currently, all other tasks are running in line with the National Plan.

TSS: The Foreign Affairs Ministry has recently submitted a plan to the cabinet to intensify consultations with EU institutions and selected EU countries to enhance the country's chances of introducing the euro on January 1, 2009. While the document declares the Slovak government's determination to adopt the euro, it also says that Slovakia's current efforts have not yet been unambiguously reflected in the assessments of the European Commission and the European Central Bank. What is the reason for the mistrust that EU institutions and member states still have towards the country?

IB: Firstly, I want to stress no Slovak official authority - government, NBS, proxy - has ever claimed that euro adoption as of January 1, 2009 is a certain thing. Of course, it is the target that we aim for in our macroeconomic, monetary and currency policies, and organisational and technical preparations. It is clear that only a political decision of EU institutions in about one year's time will make this target a certain thing.

As far as the alleged mistrust is concerned, I think you are looking for something negative in material that is merely a framework for negotiations with EU institutions.

The consultations and negotiations should provide EU institutions on various levels with all the relevant information, including the methods, models and predictions of future developments we apply. The institutions will assess not only whether Slovakia has been meeting the criteria, but also whether the results are sustainable in the future. Predictions may vary and depend on the approach, models and availability of the relevant information. Providing correctly interpreted and undistorted information to all who take part in the evaluation process, in order to prevent uncertainty and doubts, is crucial.

TSS: Most analysts agree that Slovakia has a very good chance of meeting the Maastricht criteria for euro adoption, but the most difficult task will be to prove that Slovakia can sustain the results. The EC and the ECB have been very strict in assessing the criteria and had no mercy with Lithuania. Does Slovakia have a "Plan B" in case the evaluation is not favourable?

IB:I am very glad you mentioned Lithuania. The country applied for membership in the eurozone at a time when it had not been meeting the inflation criterion target figure. Although it missed the target only by 0.06 percentage points, the figure was not met. Later developments confirmed that the sustainability principle was not secured, either.

Lithuania is a lesson that shows that there is no point to applying for eurozone accession until sustainable development is guaranteed. Slovakia is a completely different case. When we apply for the assessment of Slovakia's preparedness for the euro, we will meet the criteria with a convincing amount of room to spare and we will have strong arguments to prove that the criteria are being met in a sustainable way. All the analyses and predictions of the NBS and the Finance Ministry support this.

TSS: And so there is no Plan B?

IB: The Plan B in the sense of a formal plan does not exist. At this moment we cannot imagine what reason there could be for rejecting Slovakia. The conditions are clearly set. These can be either met or not met. If we meet them, there cannot be a reason to say no.

While there is no such plan as I said, there are, of course, some external factors that could cause Slovakia to fail to meet the criteria. But Slovak authorities do not have an impact on those: global raw material prices, for example. If there are dramatic oil price hikes, Slovakia might face a risk of failing to meet the inflation criterion. Well, it would not be the end of world. We would try to meet the criterion and apply again. Fortunately, this risk does not seem realistic right now.

TSS: But the condition of meeting the criteria in a sustainable way is a bit vague. It creates room for political manoeuvres.

IB: That is why we have to communicate, although I would not say that it enables political manoeuvring. Professional opinions may differ and that is why we have to explain all the methods, models and procedures to be able to identify and remove those differences on time.

TSS: In early 2007, Slovakia was meeting the Maastricht criteria to almost the same extent as its neighbours, Poland and the Czech Republic. However, in these countries the political will towards the euro is not as strong as it is in Slovakia. Why is Slovakia so convinced that the earliest possible euro adoption is the best alternative for the country?

IB: There is no other area in Slovakia where there is such a strong consensus among all the political parties as the euro. The process was started by the previous ruling coalition and the current coalition is continuing it. The euro is not the subject of a political battle, it was not an issue in the parliamentary elections. The polls show that the majority of citizens support the euro. This speaks for itself.

Slovakia, as a small and very open economy, is already very much tied to EU and eurozone countries. The majority of our trade is done with the eurozone. The euro will be an important impetus for Slovakia to catch up with eurozone price levels, but also labour productivity and salaries.

TSS: Households will learn about the euro from a special campaign on euro adoption. What are the basic things the campaign should teach everyone?

IB: The campaign will be informative. The aim is not to persuade people to perceive the euro as an advantage or to make them feel happy about it. These topics will be only marginal.

The aim is to provide every citizen with all the important information so that euro introduction will not cause any inconvenience to them. It means all should know the conversion exchange rate, what the euro coins and banknotes look like and their anti-forgery features.

They also need to learn the rules of the dual price display, when it will start and how long it will take, what it will look like and where to inquire if they suspect someone is breaking these rules. They should know the rules of the dual circulation of Slovak crown and the euro - until when they can use Slovak currency, and the terms of currency exchange.

TSS: What are the main sources of information on euro adoption for entrepreneurs and municipalities?

IB: The campaign directed at the business and commercial sphere has been running for a year now. The NBS plays a crucial role here. There are mainly seminars, lectures, conferences, round tables and workshops organised by the NBS and various institutions such as the Slovak Chamber of Commerce and Industry, regional chambers, and professional and employers' associations. The NBS also distributes brochures for small and medium entrepreneurs, there is a webpage on the topic, and a hotline will be launched as well.

The business community must be prepared for the euro in a different way than common citizens, who need to be informed but do not have to fulfil any special tasks. Entrepreneurs must at least be active in preparing the information systems and cash registers, and securing the dual price display. Moreover, entrepreneurs bear the costs for the preparations themselves, which can cause problems mainly for small businesses and the self-employed if they are not prepared early enough.

Similar activities are targeted at municipalities, with the Association of Towns and Villages of Slovakia being particularly active here. They are even preparing their own campaign for communities. Our aim is to have at least one person in each town or village office trained to provide information. The mayors of smaller villages are often the only contact citizens have with public life.

TSS: What groups will you have the hardest time reaching with the information?

IB:We have specified these groups. They are mainly citizens who are elderly and alone, living in isolated communities, and handicapped people. Ethnic minorities are another specific group. We have to apply a different approach, for example, towards the Roma.

Children are a special segment too. A special programme called "The Euro Into Schools" will take place over the next school year. It will be a simple educational programme. The children only need to know that the crown will cease to exist, there is now the euro, and what are the new coins and banknotes. Moreover, children are great propagators. They can spread the information to parents, grandparents and, in fact, help reach the groups that are difficult to address by direct tools.

TSS: Can you talk a bit about the role of banks in the conversion process? How is the banking sector being prepared?

IB: Banks are quite naturally the leaders in the preparations. Almost all the banks in Slovakia have their mother banks in eurozone countries, so it is easier for them to get the know-how and the experts.

They have to be the first to get ready, and participate in the process of frontloading (supplying with cash).

Right after Slovakia is approved for the eurozone, it will also start minting Slovak euro coins in the Kremnica mint. We're talking about 400 million coins. At the same time, Slovakia will borrow euro banknotes from some of the eurozone countries. The NBS will distribute the coins and banknotes to banks in the process of frontloading.

The so-called sub-frontloading is another stage. By the end of 2008, the banks will have to supply cash to all of their clients - companies, retailers, organisations working with cash. The banks have already monitored what amounts of cash their clients will need.

The banks will also have to secure free, automatic, rapid and flawless conversion of all the accounts. They must cope with possible crowds of clients demanding cash exchanges directly at the counters.

TSS: The public is in general concerned about price hikes after euro adoption. One of the tools to prevent this will be dual price display. Is it effective enough? Are there any other tools?

IB: Dual price display is only one of the tools that will create a system of consumer protection. Apart from that, the trade inspection bodies will be very active. We will have a Code of Ethics under which entrepreneurs should promise not to abuse the situation. We will also focus on raising consumers' awareness. They must know where to turn if they feel the system of administrative measures has been breached.

However, the consumer's common sense must stand behind all these measures. Consumers will have to be active. For example, they will prefer shops where prices are lower, even if they have to walk two more blocks to get there.

Of course, the weaker the competition, the less scruples businesses will have to deter them from artificially increasing prices. In small villages it will be much more difficult to choose a cheaper competitor.

TSS: After euro adoption, a large amount of Slovak money will be withdrawn from circulation. What will happen to it?

IB: Currently, there is about Sk150 billion to Sk160 billion of cash in circulation in Slovakia. The Slovak money will gradually be withdrawn from circulation by banks and end up in the NBS to be discarded.

The banknotes will be cut into small pieces, pressed into briquettes and burnt. The process is the same as with damaged banknotes. The coins are manufactured of quite fine metal alloys such as copper, nickel and others. Thus the coins will be mechanically devaluated, smelted and sold to companies interested in their further manufacturing.

TSS: An unsuccessful bidder in the tender for the informative campaign for euro adoption has filed a complaint against the results of the tender to the Finance Ministry and Public Procurement Office.

IB: I see the decision of a tender commission as correct and in line with the law. I cannot imagine a legal reason for doubting this decision. Our further steps will be in line with the law.

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