Transcript Euro Introduction in Slovakia

Euro Introduction in Slovakia
Martin Šuster
Director of Research Department
Vilnius
1. 4. 2009
Presentation Outline
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Plans and decisions
Technical preparations
Changeover
2
Plans and decisions
3
Importance of Euro for Slovakia
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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)
4
Most of the Trade is in €
Non-EU
Europe
6%
Other
countries
7%
Non-€ EU
24%
€-area
63%
% Export
(2007)
Source: ŠÚ SR.
5
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
(% GDP)
0,3
0,4
loss of
independent
monetary policy
* for comparability with permanent effects the one-off conversion costs are split to 5 annual installments
Source: NBS.
6
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
7
Consistent Plans
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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
Euro adoption had
Updated Changeover plans
broad political
support in Slovakia
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Main Indicators at the Decision
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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???
9
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?
10
Public Finance Reform
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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
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
93.5% of PIT revenues addressed to local governments
disadvantage: extra PIT revenues cannot be used for additional fiscal
consolidation
11
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
12
Crucial decisions
ERM II Entry
Request for Euro area entry
Convergence reports of EC and ECB, EC
recommendation to the Council on abrogation of
derogation
Abrogation of excessive deficit procedure
Council abrogates derogation and sets conversion rate
Euro adoption
28. 11. 2005
5. 4. 2008
7. 5. 2008
3. 6. 2008
8. 7. 2008
1. 1. 2009
13
Maastricht Criteria were Met
with a Sufficient Margin
Criterion
Inflation (average, %)
Interest rates (%)
Public debt (% GDP)
Public deficit (% GDP)
ER stability
* Year 2007
March
2008
2.2
4.5
29.4*
2.2*
Reference
value
3.2
6.5
60.0
3.0
ERM II since Nov. 2005
State of
Fulfillment
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

Source: Eurostat, European Commission, MF SR, NBS.
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Development of Reference Value and
Inflation in Slovakia
7.0
6.0
4.0
3.0
1 p.p.
2.0
Reference value
I.09
XI.08
IX.08
VII.08
V.08
III.08
I.08
XI.07
IX.07
VII.07
V.07
III.07
I.07
XI.06
IX.06
VII.06
V.06
III.06
I.06
XI.05
IX.05
VII.05
V.05
1.0
III.05
%
5.0
HICP inflation in SKK (12-month average)
Source: Eurostat.
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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
Source: press releases of EC and NBS, 8 July 2008.
SKK to the euro.“
1€ = 30.1260 Sk
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Euro brings stability
 a stable currency increases overall economic stability and generates
favorable conditions for long-term business decisions
Depreciation
of the currency
130
120
115
Appreciation
of the currency
110
105
100
95
90
SKK
CZK
HUF
PLN
III.09
II.09
I.09
XII.08
XI.08
X.08
IX.08
VIII.08
VII.08
VI.08
V.08
IV.08
III.08
II.08
85
I.08
Index (I.2008=100)
125
RON
Source: ECB.
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Technical Preparations
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Principles of Euro Conversion
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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
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National Euro Changeover Plan
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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
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Institutional Framework of € Introduction
National Coordinator
(Ministry of Finance)
National Coordinating
Committee
gvt. plenipotentiary
Working Committees
Banks and financial
sector
Public administration and
local governments
Information systems
and statistics
Business sector and consumer
protection
Legislation
Communication
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Frontloading of euro cash
NBS
Frontloading
Commercial banks
Sub-frontloading
Businesses
ATMs
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Sub-frontloading
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Sub-frontloading started on October 28, 2008 and
finished on December 31, 2008.
About 14 000 subjects participated in subfrontloading.
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.
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Consumer Protection System
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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)
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Consumer awareness
(following dual price tags
and warn of price increases)
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Dispute resolution (Black list)
Control of consumer protection
associations
Control (SOI, ŠÚ SR, ...)
Monitoring of selected prices
by ŠÚ SR on 2nd and 5th
January 2009 and every 10
days
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Ethical code
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Main commitment: euro will not rise prices
Calls on enterprises to join – radio, prints,
internet
3000 members
Over 20 000
shops
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Communication
Preparations
till June 2007
Start
till July 2008
Intensive campaign
July 2008 – 1.1.2009
Finish – year 2009
26
Objectives
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Everybody should be informed
(in appropriate form and extent)
Informative and educational campaign,
not persuasive
Practical, Simple
Main target group: General Public
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Main Messages
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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 …
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Target Groups
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General Public
Children
Youth
Elderly
Blind / Partially sighted
Deaf / Hearing impaired
Minorities (Hungarian, Roma)
SMEs
Government / Local governments
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Tools
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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 …
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31
32
33
34
35
36
Changeover
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New Year / Euro Adoption Celebrations
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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).
120%
Share of operating ATMs
100%
80%
60%
40%
8:00
2:00
1:45
1:30
1:15
1:00
0:45
0:30
0:15
0:00
23:45
23:30
23:15
23:00
22:45
22:30
22:15
22:00
21:45
21:30
21:15
0%
21:00
20%
Source: NBS.
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Cash Exchange
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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
40
share ( %)
Dual circulation period - payments
100
90
80
70
60
50
40
30
20
10
0
Share of payments in koruna and euro
93
96
87
78
77
64
63
48
27
28
45
18
16
10
2
1
1.I
2.I
3.I
4.I
5.I
6.I
Payments in SK
7.I
8.I
9.I
10.I
11.I
12.I
13.I
14.I
15.I
Payments in €
Source: EC.
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Dual circulation period – cash in wallets
share (%)
Share of euro coins and banknotes in wallets
100
90
80
70
60
50
40
30
20
10
0
90
82
88
63
96
98
95
97
76
48
29
36
56
44
32
24
1.I
2.I
3.I
4.I
5.I
6.I
7.I
Mostly or only euro banknotes
8.I
9.I
10.I 11.I 12.I 13.I 14.I 15.I
Mostly or only euro coins
Source: European Commission.
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Dual Circulation Period (Change in €)
Change given in euro
100
90
80
70
60
50
40
30
20
10
0
1.
2.
3.
4.
5.
6.
7.
8.
9.
10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.
Malta
Cyprus
Slovenia
Slovensko
Source: Eurobarometer.
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Koruna Cash in Circulation
160
140
(bil. SKK)
120
100
80
60
40
20
0
1.IX
1.X
1.XI
1.XII
1.I
Source: NBS.
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Information Level
100
90
80
70
60
50
40
30
20
10
0
IX.04
I.05
V.05
IX.05
I.06
V.06
IX.06
I.07
V.07
IX.07
I.08
Information about euro is sufficient / more sufficient than not
V.08
IX.08
I.09
Source: ŠÚSR.
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Support for the Euro
90
80
70
60
50
40
30
20
10
0
Sept (-4)
Apr (-3)
Sept (-3)
SK
Apr (-2)
SI
Sept (-2)
Apr (-1)
MT
Sept (-1)
Mar(+1)
CY
Source: Eurobarometer, ŠÚSR (ex-post survey in Slovakia).
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Fears - Price increases
90
80
70
60
50
40
30
20
10
0
Sept (-4)
Apr (-3)
Sept (-3)
SK
Apr (-2)
SI
Sept (-2)
Apr (-1)
MT
Sept (-1)
Jan (+1)
CY
Source: Eurobarometer.
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Conclusion
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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
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2€
1€
Thank you
for your attention
50, 20, 10 c
5, 2, 1 c
49