Slovakia, once a laggard, moves ahead on euro adoption

Once the laggard among the rapidly restructuring central European economies, Slovakia now ranks as a top contender in the region's next major undertaking after joining the European Union: adopting the euro. Considered a crony-capitalistic economy until its post-Communist government headed by Vladimir Meciar was ousted in 1998, this mountainous country of 5.4 million people has gotten its act together with remarkable speed. It now stands a good chance of trading the koruna for the euro by 2009, not the fastest among all the new EU members, but surprisingly good, given its recent past, according to government officials and independent economists. Though EU treaties require euro candidates to lower inflation and control exchange rate fluctuations, Slovakia's main achievement is rooted in structural changes, principally changes to public pensions, social welfare and health care, that have put government borrowing on a long-term path downward. "We are in better shape than most of our neighbors on public finances," Slovakia's finance minister, Ivan Miklos, said in an interview. "That's the only reason we are moving quickly." To adopt the euro, candidate countries must agree to keep their national currencies fluctuating within a narrow band vis-à-vis the euro for two years, and Slovakia cannot claim the top spot in that race. Estonia, Slovenia and Lithuania took the step in June 2004, giving them a shot at introducing the euro by 2007. But among the major central European countries - which also include Poland, Hungary and the Czech Republic - Slovakia stands largely alone, economists said. Inflation, running near 3 percent, is falling, and the country plans to join this exchange rate mechanism next year. The government hopes to hammer out an initial plan by midyear. Slovakia's credibility with financial markets stems from a tough-minded reform of public pensions that it put in place last year.