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Reader feedback: Doubts about the euro

Re: Most Slovaks support euro adoption, Flash News, October 14, 2005

It is of course difficult to tell if the respondents [in the survey mentioned in the article] thought "We are in the EU now, so we should also change over to the euro", or "hang on, what are the pros and cons for me personally and for Slovakia as a whole?".

Also, 56 percent can hardly be referred to as "Most Slovaks", since 44 percent is still a fair size of the population.

Having said that, what could the implications actually be, as in, how could the euro affect my purse, my healthcare and my pension?

There are three major issues to consider:

1. It is of paramount importance that the conversion is made at the right level, for either too high or too low could be quite damaging.

If one goes in too high, one will suffer inflation that is only noticeable when one finds after a while that one is short at the end of the month, even though statistics show low inflation.

If one goes in too low the euro-pool siphons off the difference, resulting in an (this time statistically apparent) increase in inflation locally.

One wonders if the right level is actually determinable in the short period available until the choice has to be made.

2. It is evident to everyone that Slovakia still has to attract quite a bit of FDI. So far, this has been coming at a fair rate. However, there could be some booby traps along the way, since there could be a government change, negatively impacting on the investment climate.

In the event of a slowing down of FDI, Slovakia, using her own currency, can use the instrument of devaluation, coupled to interest rate adjustment; with the euro she cannot.

Allowing the state debt to rise to bridge the distance between a current bad period and a [hopefully] future good period is also out of the question as a member of euroland.

3. Last but not least, half of the euroland countries are not exactly adhering to the Maastricht treaty, while in addition, Italy has not as yet reformed her state pension scheme.

Unfortunately, the US has borrowed more money than ever before, which blurs the actual performance of the euro versus the dollar.

If someone could come up with a fine list of advantages Slovakia will enjoy after joining the euro, I would be in favour of it, but as yet I still have reservations.

Oscar,
Radošovce, Slovakia

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