Ivan Sramko helped make history this year following the European Commission’s green light for his country’s bid to adopt the euro next January.
Reassuring a swarm of sceptical European bureaucrats and politicians that relatively low inflation is sustainable proved no small challenge. Neither did maintaining stable prices in the face of soaring commodity prices and labour costs – in a forced low interest rate environment.
Yet Slovakia fulfilled its Maastricht bargain with fiscal discipline and low public debt, and the central bank secured an annual inflation rate of 2.2% – comfortably below the 3.2% eurozone candidate threshold. “The discussions were quite intense on all levels, from the expert to the high-level meetings,” the Slovakian central bank governor tells Emerging Markets. “Talks were very open; we tried to provide as much detailed information as we could.”
But the European Central Bank remained sceptical, warning that ongoing price convergence combined with tight labour markets, high energy prices and the inflation-dampening effects of currency appreciation threw into doubt future price performance.
Sramko, governor since January 2005, hit back, arguing that pro-active monetary policy can address the long-term process of price convergence while outside shocks would drive any bouts of high inflation. “Much more risks originate from energy and food prices, which secondary effects are hard to predict and even harder to control,” he says.
The central banker successfully argued that the four-year-old EU member’s strengthening economic fundamentals rendered it ripe for euro accession. Moreover, he says, strong economic growth “would have had an impact on inflation irrespective of whether we introduced the euro or not”.
While formerly enthusiastic eurozone candidates Bulgaria, Latvia, Lithuania, the Czech Republic, Estonia, Romania, Poland and Hungary have so far failed in their euro bids, Sramko argues that a stable political consensus has seen the nation through. “We set the target in 2003 and we concentrated on its fulfilment due to the responsible approach above all of the government, and full support of the whole political spectrum.” Not bad for a nation that until 1993 was the smaller and poorer territory of the communist Czechoslovakia.
With prices in Slovakia still only around two-thirds of the EU average, price rises are expected to be above the euro area average over the next decade. But in a bid to damp inflation expectations, the former board director at Tatra Bank argues that “the real convergence is a long-term process, as the major differentials apply to the prices of services – tradable goods prices are almost converged,” and urges fiscal consolidation.
Joaquin Almunia, EU commissioner for economic and monetary affairs, tells Emerging Markets Slovakia is “a shining example of how obeying good monetary and fiscal policies will be rewarded by the European Community”. If low inflation can be sustained in the medium term, Sramko will also have helped blaze a trail for his fellow eurozone aspirants.