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First come the Maastricht criteria

FULFILLING the Maastricht criteria is the main qualification for adopting the euro. Although Slovakia currently does not fulfil all the criteria, the central bank assumes the country will fulfil them by 2007.



Inflation


Criterion: No more than 1.5 percent above the average inflation rate of the three lowest inflation countries in the EU.

The average level of the harmonized consumer price index for the last 12 months (June 2003 - May 2004) in Slovakia quite significantly exceeds the reference rate (2.5 percent) for the same period.

However, the high inflation is largely a consequence of administration price measures such as price deregulations, changes in excise taxes and unifying VAT. The last administration measures in Slovakia were taken in 2004. Inflation should thus significantly drop in 2005 and in 2006 the inflation criterion should be met. At that time inflation in Slovakia should be 2.5 percent while the reference rate is envisaged at 2.7 percent.



Public finance deficit


Criterion: No more than 3 percent of Gross Domestic Product (GDP).

Slovakia does not fulfil the criterion. However, in 2003 the deficit significantly decreased to 3.5 percent of GDP compared with 5.7 percent of GDP in 2002, thanks to strict budgetary restrictions and structural reforms.

To lower the deficit to 3 percent of GDP it will be necessary to accomplish the on-going reforms in public finance. Slovakia should fulfil the criterion in 2007 when the deficit should reach 3 percent of GDP.



Public debt


Criterion: No more than 60 percent of GDP.

In 2003 Slovakia's public debt reached Sk511.3 billion (€13.3 billion), which represented 42.8 percent of GDP. The reference figure of 60 percent has not been reached in the past.

Due to pension reform, but at the same time the dynamic growth of GDP and consolidation of budget development, the public debt should stabilize at 46 percent in 2005.



Long-term interest rates


Criterion: The long-term interest rate should be no more than 2 percent above the average of the three countries with the lowest inflation rates.

Slovakia reached an average long-term interest rate for the last 12 months (June 2003 - May 2004) of 5.13 percent while the reference figure represented 6.46 percent for the same period.

Based on the prognosis, the development of long-term interest rates until 2007 in Slovakia will be approximately the same as in the EU. Fulfilling this criterion should therefore not be a problem.



Stability of foreign exchange rates in ERM II range


Criterion: Currencies in ERM II (European Rate Mechanism II) are allowed to float within a range of plus or minus 15 percent with respect to a central rate against the euro in a period of two years.

So far, Slovakia is not included in ERM II and so the evaluation of the foreign exchange rate stability would be too early. However, the NBS sees the currency development so far as quite stable, suggesting Slovakia should not have a problem fulfilling this criterion. It is estimated that Slovakia will join ERM II in about one year's time.

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