Slovak PM Fico: Only politics could stop euro entry

The European Commission, the EU’s executive body, will release key economic forecasts on April 28 and announce on May 7 whether Slovakia is ready to adopt the single currency. Despite having met the numerical conditions for joining the euro zone, Slovakia may still be disqualified if the European Commission rules that its low inflation is not sustainable. “In terms of the numbers Slovakia has met everything it was supposed to meet,” Fico told a news conference. He said debate was still going on about inflation sustainability, but added Slovakia should not be disqualified as inflation is rising in all of Europe. “If somebody is thinking that Slovakia should not have the euro, it would have to be political consideration not an economic one,” the leftist prime minister said.

Most analysts believe that Slovakia’s euro entry application will be accepted, despite credibility of the threat of a future jump in inflation. Asked what would happen if Slovakia’s bid was rejected, Fico reiterated that the country would continue to meet the Maastricht criteria for euro entry, which set caps on inflation, debt, government deficit, long-term interest rates and currency volatility. Fico also rejected arguments that inflation was kept artificially low by government pressure on energy prices.

The main argument concerning sustainability is that inflation would jump after Slovakia fixes its exchange rate to the euro, thus removing the downward pressure on prices of imported goods coming from the long-term trend of currency appreciation. Rising exchange rates and inflation are the two channels for convergence of price levels and incomes with the richer western Europe. (Reuters)