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Euro Introduction in Slovakia

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98% of spot foreign exchange trades ... Dispute resolution (Black list) Control of consumer protection associations. Control (SOI, SR, ... – PowerPoint PPT presentation

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Title: Euro Introduction in Slovakia


1
Euro Introduction in Slovakia
  • Martin uster
  • Director of Research Department

2
Presentation Outline
  • Plans and decisions
  • Technical preparations
  • Changeover

3
Plans and decisions
4
Importance of Euro for Slovakia
  • Main reference currency
  • 3/4 foreign exchange reserves
  • All foreign exchange interventions
  • 98 of spot foreign exchange trades
  • Share of foreign trade in increases (expected
    to reach 90 after euro adoption)

5
Most of the Trade is in
Export (2007)
Source Ú SR.
6
Benefits Exceed Costs
for comparability with permanent effects the
one-off conversion costs are split to 5 annual
installments
Source NBS.
7
Preparations started before the EU entry
  • 2003 Strategy of euro adoption in SR
  • it is beneficial to adopt euro as early as
    Maastricht criteria will be fulfilled (2008-2009)
  • it is necessary to implement fundamental reforms
    (particularly public finance consolidation)
  • to minimize inflationary pressure, the period of
    price deregulation shouldn't t take long

8
Consistent Plans
  • Euro adoption strategy in 2003 set target for
    euro area entry in 2008 or 2009
  • Specification of euro adoption strategy in 2004
    target set in 2009
  • National euro changeover plan approved in 2005
  • New government in 2006 confirmed plans to adopt
    euro in 2009
  • Updated Changeover plans

Euro adoption had broad political support in
Slovakia
9
Main Indicators at the Decision
  • Deficit in 2002 was over 8 of GDP
  • Inflation was fluctuating between 8 to 10
  • Increases in VAT, excise taxes and regulated
    prices were in the pipeline
  • GDP growth in 2002 below 5
  • Unemployment exceeded 17
  • OCA criteria???

10
Monetary Policy Adjustments
  • 2004 decision from implicit towards explicit
    inflation targeting
  • Inflation targeting within ERM II
  • What were/are the puzzles?
  • Assessment of exchange rate development with
    respect to Maastricht criteria fulfilment close
    to parity what does it exactly mean?
  • How to cope with appreciation trend, when to
    intervene, how to communicate exchange rate
    developments (in fact when to maintain silent),
    is it necessary to consider exchange rate while
    deciding about interest rates?

11
Public Finance Reform
  • Introduction of programme budgeting (3 years
    ahead)
  • Creation of State Treasury and Agency for Debt
    and Liquidity Management
  • Fiscal decentralization delegation of
    responsibilities and their financing to local
    government
  • 93.5 of PIT revenues addressed to local
    governments
  • disadvantage extra PIT revenues cannot be used
    for additional fiscal consolidation

12
Main Structural Reforms
  • Tax system reform flat tax, very simple system
  • Pension reform 2nd and 3rd capital pillars
  • Price deregulations major adjustment of
    relative prices
  • Social, healthcare and education system
    adjustments

13
Crucial decisions
14
Maastricht Criteria were Met with a Sufficient
Margin
Year 2007
Source Eurostat, European Commission, MF SR, NBS.
15
Development of Reference Value and Inflation in
Slovakia
1 p.p.
Source Eurostat.
16
Slovakia 16th Country of the Euro Area
(8 July 2008) Economic and Financial Affairs
Council (ECOFIN) adopted final and formal
decision allowing Slovakia to adopt the euro as
from 1 January 2009.
The European Union's finance ministers adopted
the legal acts necessary for Slovakia to adopt
the euro on 1 January 2009. Based on a Commission
proposal, they also decided that the Slovak
koruna will be replaced by the euro at the rate
of 30.1260 SKK to the euro.
Source press releases of EC and NBS, 8 July 2008.
1 30.1260 Sk
17
Euro brings stability
  • a stable currency increases overall economic
    stability and generates favorable conditions
    for long-term business decisions

Depreciation of the currency
Appreciation of the currency
Source ECB.
18
Technical Preparations
19
Principles of Euro Conversion
  • Big-bang
  • Short dual circulation (16 days)
  • Only the conversion rate set by the Council can
    be used
  • Continuity of contracts
  • No harm to the citizen
  • Prevent unjustified price increases and perceived
    inflation
  • Changeover cost minimization
  • Everyone covers the conversion costs him/herself

20
National Euro Changeover Plan
  • Detailed organizational steps, responsibilities,
    deadlines
  • Open document tasks can be changed or amended
    updated annually
  • 4 sectors 2 cross-section areas
  • financial sector, public administration,
    businesses, legislation
  • information and statistical systems, communication

21
Institutional Framework of Introduction
22
Frontloading of euro cash
NBS
Frontloading
Commercial banks
Sub-frontloading
Businesses
ATMs
23
Sub-frontloading
  • Sub-frontloading started on October 28, 2008 and
    finished on December 31, 2008.
  • About 14 000 subjects participated in
    sub-frontloading.
  • In total 14.3 mil. euro banknotes worth 225
    mil. and 195 mil. euro coins worth over 66 mil.
    were distributed.
  • 1/4 of frontloaded euro banknotes and 2/3 of
    coins were used in sub-frontloading.

24
Consumer Protection System
  • Consumer awareness (following dual price
    tags and warn of price increases)
  • Dispute resolution (Black list)
  • Control of consumer protection associations
  • Control (SOI, Ú SR, ...)
  • Monitoring of selected prices by Ú SR on 2nd and
    5th January 2009 and every 10 days
  • Market competition
  • Dual display of prices
  • Rounding Rules
  • Free cash exchange (up to at least 100 pieces)
  • State rounding in favor of citizens
  • Voluntary obligations of enterprises (Ethical
    Code, Declaration of Common Agreement to Adopt
    and Use Euro)

25
Ethical code
  • Main commitment euro will not rise prices
  • Calls on enterprises to join radio, prints,
    internet
  • 3000 members
  • Over 20 000 shops

26
Communication
Preparations till June 2007
Start till July 2008
Intensive campaign July 2008 1.1.2009
Finish year 2009
27
Objectives
  • Everybody should be informed (in appropriate
    form and extent)
  • Informative and educational campaign, not
    persuasive
  • Practical, Simple
  • Main target group General Public

28
Main Messages
  • Conversion rate and the value of the euro
  • Key dates
  • Dual circulation
  • Dual display of prices and consumer protection
  • Price abuse prevention
  • Banknotes and coins, security features
  • EMU, ECB

29
Target Groups
  • General Public
  • Children
  • Youth
  • Elderly
  • Blind / Partially sighted
  • Deaf / Hearing impaired
  • Minorities (Hungarian, Roma)
  • SMEs
  • Government / Local governments

30
Tools
  • Media news, reports mainly public media
  • Advertising in media, outdoor advertising
  • Direct mails
  • Printed materials (leaflets, brochures, posters)
  • Free info line (0800 103 104)
  • Website (www.euromena.sk)
  • Euro day
  • Conferences, seminars, lectures

31
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37
Changeover
38
New Year / Euro Adoption Celebrations
39
Conversion of ATMs
  • The conversion of ATMs passed smooth, one minute
    after midnight there were 28 of operating ATMs,
    and two hours after midnight almost 94 ATMs
    (conversion of POS passed even faster).

Share of operating ATMs
Source NBS.
40
Cash Exchange
  • Till 16.1.2009 dual circulation both SKK and
    EUR
  • Exchange in banks
  • notes till 31.12.2009
  • coins till 30.6.2009
  • no-fee limit up to at least 100 pieces
  • Exchange in NBS
  • notes forever
  • coins till 31.12.2013
  • no fees, cash must be counted and sorted

41
Dual circulation period - payments
Share of payments in koruna and euro
Source EC.
42
Dual circulation period cash in wallets
Share of euro coins and banknotes in wallets
Source European Commission.
43
Dual Circulation Period (Change in )
Source Eurobarometer.
44
Koruna Cash in Circulation
Source NBS.
45
Information Level
Information about euro is sufficient / more
sufficient than not Source ÚSR.
46
Support for the Euro
Source Eurobarometer, ÚSR (ex-post survey in
Slovakia).
47
Fears - Price increases
Source Eurobarometer.
48
Conclusion
  • Early start
  • Broad consensus (both political and social)
  • Major economic reforms long before Maastricht
    assessment
  • Good luck
  • All stakeholders involved from planning stage
  • Plan for the worst, hope for the best

49
Thank you for your attention
2
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5, 2, 1 c
50, 20, 10 c
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