The state of votes
The adoption of the euro, a good decision for the Slovak Republic
The euro will push Slovakia into a financial crisis
Veronika Bajnoková | 2018. April 25. 07:00
Slovakia joined the European Union in 2004. With the entry the Republic pledged to enter the euro area. Now it’s been nine years since the Slovak koruna was converted to the euro. In this article I’m going to detail why our government made a good decision.
Lower transaction costs are considered to be the major advantage. This does not include only the benefit of not paying extra costs for exchanging currencies, but also wider, easier accessible international trade within the eurozone. People can spot the advantages in everyday life. Shopping online in foreign e-shops was encouraged together with the competition between foreign firms entering our market and firms based in Slovakia. Since the aim of the European Union is to create a common market for the countries, adopting the euro in Slovakia is only a step forward. Nowadays, we can enjoy the quality of goods from exporting countries like Germany, France or Austria, while the businesses profit from the elimination of exchange-transaction costs. Moreover, single currency in Euroland allows buyers and consumers to search for cheaper goods and raw materials beyond the borders of their country. This means that Slovak businesses and firms may look for more lucrative deals abroad, and vice versa.
Unemployment was always a serious issue for the Slovak Republic. In our country’s history tens of thousands people emigrated mostly to America hoping to find a steady source of income for their families. With entering the European Union in 2004 the unemployment rate has significantly decreased. So the adoption of the euro has only positive effects in this respect. This year the unemployment rate in Slovakia is the lowest since 2008. As I mentioned above, incoming foreign firms have created lots of new work positions for Slovaks. However, sharing the same currency with neighbouring countries has even more benefits. In these days many people find jobs abroad, while still living inside the Slovak borders. This “trend” is widely spread, either because of the low minimum wage compared to countries such as Germany or Austria, or because of the inability to find a job in Slovakia. Thus people leave families for work and come back to their homeland either every two weeks or every month. Such strategy is very profitable, since it allows people to work for higher incomes abroad and buy cheaper goods at home.
A significant number of indirect advantages of the conversion to the euro overcome the direct ones. Whether we are talking about enhanced quality of life in Slovakia or already mentioned bigger variety of accessible goods for a wide range of prices, the acquired benefits are unquestionable. Many Slovak economists agree that the euro has brought more benefits and it may have also increased the tourism. Adoption of the common euro ensured a stable and strong currency for our country, and furthermore it provides low-interest rates policy. Slovak koruna was switched to euro at the rate of 30.1260 korunas per euro. Many Slovaks were before the entry to the eurozone afraid of the rapid rise in prices of products and services, however our Republic successfully avoided that. It can be said, in general, that inhabitants of the Slovak Republic are satisfied with the common currency.
Finally, if you happen by any chance to have some Slovak euro coins, make sure you check on the back side whether it shows our coat of arms, the majestic Bratislava Castle or the symbol of our magnificent mountain Kriváň, which is ranked as the most beautiful peak of the country.
Lucia Polláková | 2018. April 25. 20:00
Slovakia was willing and able to fulfill the hard Maastricht convergence criteria for joining the euro-zone as soon as it joined the EU in 2004. The Slovak Republic achieved it quite unexpectedly fast as the first country of the Visegrad four (V4). On 28 November 2005, Slovakia joined the ERM II system only after a year and half membership in the Union. Since the introduction of the euro in Slovakia, 9 years have passed. But was this step for the Slovak economy and the population absolutely the right one?
Many experts refer to the fact that the introduction of the euro as a currency has brought many benefits to Slovakia. On the other hand, fewer studies are dealing with the disadvantages of introducing the euro. According to a study by the National Bank of Slovakia (NBS) entitled "Influence of introduction of the euro on Slovak economies" in 2006, the introduction of the euro brought stability, but as one of the biggest disadvantages brought a loss of monetary sovereignty. This means that Slovakia has lost the opportunity to respond to the currency's exchange rate on the economic situation. The NBS has lost the power to manage Slovakia's currency policy, which could respond to various issues in the world economy, such as inflation. Inflation is, for example, a condition where at increased inflation for 1 euro could be bought less goods as in the past. Generally speaking, people would have to pay more for the goods as its price would increase. Therefore, the NBS could maintain with the Slovak koruna the koruna's exchange rate against the other currencies, but it is not possible at present in the euro-zone.
Slovakia has been dealing with hard times since the introduction of the euro in 2009. For example, there was a continuing global economic crisis since 2008. Afterwards, the Greek debt crisis has also negatively affected the Slovak economy and budget.In the founding treaties of the EU, the idea was to create a monetary and economic union. To achieve this, the monetary and economic policies of the member states should be united. However, only a monetary union with a euro currency was created. There has been no convergence of the common economies and differences between strong and weak economies have only deepened. This has resulted in Greece's economic and debt crisis. Its economy could not compete with strong states in the euro-zone and therefore could not pay its debts. Slovakia, as a euro-using country, is obliged to help the euro-zone members if they get into financial troubles. Slovakia's participation in the European rescue funds caused, in addition to the increased costs, the failure of Prime Minister Iveta Radičová's government in 2011, because she combined the vote on financial aid with a vote on the government's confidence. Her liberal coalition partner SaS (Freedom and Solidarity) refused to give a helping hand to indebted Greece, which in 2009 falsified economic statistics for its benefit and did not show the fact that it was very indebted. This event, in my opinion, has lowered the trust of Slovak citizens in the EU and has supported the rise of extremist parties such as the extreme right-wing party Kotleba- ĽSNS (Kotleba – People´s Party Our Slovakia), which thanks to the theme of the Euro-zone crises, also got to the Parliament in 2016.
The future of the euro is unclear to me and I am not the only one. This information was also confirmed in the article “Creator of euro Issing has worries about the future of the project”, by euro author Otmar Issing, first chief economist of the European Central Bank (ECB), who pointed out problematic states such as Greece, Italy or Portugal. While referring to the fact that the euro is stable, the same cannot be said about the euro-zone countries. If they are not stable euro-zone countries, the common currency euro does not make any sense. For that reason I think the Euro may cause a major financial crisis in Slovakia, and eventually also in the whole euro-zone area.
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