Transcript Maastricht and Sustainability

NÁRODNÁ BANKA SLOVENSKA
Slovakia and the Euro:
Mission Completed
Ódor Lajos
Member of the Bank Board
Outline
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Once Laggard, Now Leader
Costs and Benefits
Crisis and the Euro: Is it Better to be Inside?
Main Lessons for Floaters
Policy Advice
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Once Laggard, Now Leader
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No one wanted to lag behind again in 2003
Successful structural reforms
Good luck
Political consensus enforced also by financial
markets
Consistent and realistic plans - no deviation
from initial target date 2008/2009
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Important Milestones
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Policy Choices
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Credible fiscal consolidation – focus on the
expenditure side
Structural reforms have increased the
growth potential nad flexibility of our
economy
Flexible inflation targeting regime with one
eye on the exchange rate
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Benefits Exceed Costs
financial
transaction costs
administrative
transaction costs
benefits
exchange rate
risks
long-run GDP increase by 7-20 %
costs
currency
conversion costs*
0
0,1
0,2
0,3
(% GDP)
0,4
loss of
independent
monetary policy
* for comparability with permanent effects the one-off conversion costs are split to 5 annual installments
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Euro Brings Stability
 stable currency increases overall economic stability and creates
favourable conditions for long-term business decisions
120
Depreciation
110
105
Appreciation
100
95
90
85
SKK
CZK
HUF
PLN
X.08
IX.08
VIII.08
VII.08
VI.08
V.08
IV.08
III.08
II.08
I.08
XII.07
XI.07
80
X.07
Index (X.2007=100)
115
RON
Source: ECB
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Main Lessons for Floaters

Fulfillment of backward-looking indicators
necessary but not sufficient
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Euro brought us many benefits even before the
entry date
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ERMII and managed floating are friends, not foes
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Do not rely on equal treatment
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Qualitative assessment important; no definition of
sustainability
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Policy Advice (1)
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Political consensus is good for markets – vital for stable
policy path (euro preparations take longer than one
government office trem)
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Carry out structural reforms before eurozone entry
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Communicate, communicate, communicate
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Ask for sustainability assessment at ERM II entry
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Prepare your ERMII commitments very carefully
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Use maximum band in ERMII, do not fix
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Policy Advice (2)
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Prepare escape clauses
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Be aware of speculative capital inflows in ERM II (oneway bets)
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Transparency in public accounts is a must
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Have a list of credible measures to support fiscal
prudence
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Have a solid asessment of cyclical position, ER passthrough, labour market tensions and regulated prices
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December 2008
Budapest
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