The effects of euro adoption on the Slovak economy
Martin Šuster, Marek Árendáš, Michal Benčík, Pavel Gertler, František
Hajnovič, Zora Komínková, Tibor Lalinský, Marián Nemec, Dušan Preisinger,
Vladimír Solanič, Anna Strachotová, Marcel Tirpák, Tomáš Tózsér, Juraj Zeman
National Bank of Slovakia
Abstract:
We analyze the costs and benefits of adopting euro in Slovakia. The study
comprehensively assesses all aspects of euro adoption in Slovakia and makes
quantitative estimates of partial effects whenever possible. We incorporate
recent information and political decisions, in particular the official euro
adoption date and the changeover scenario. We also draw implications of euro
adoption on various economic actors, consumers, businesses and the public
sector.
Direct benefits of euro adoption are estimated to save almost 0.4% GDP
annually. The most important indirect benefit of Slovak entry into the
eurozone is its potential to boost annual economic growth by approximately
0.7% in the medium term. The most important disadvantages of euro adoption
are one-off costs. The costs of losing independent monetary policy are
estimated to be small. Overall, the quantifiable costs of euro adoption are
around 0.1% GDP in annualized terms. This is significantly lower than the
expected benefits. In addition, we also assess some risks connected with
euro adoption. The most significant ones are the likelihood of slightly
higher inflation after euro is introduced and the implications of
administrative barriers to labor flows and trade in services in EU
countries.
The expected positive effects of euro adoption in Slovakia hinge on
appropriate economic policies, which will have to support stability and
flexibility of the economy in the absence of national monetary policy.
Provided these policies are in place, the official target of adopting euro
in 2009 is optimal. Entering the euro area at a later date implies a loss of
some of the potential benefits of euro adoption.