The successful use of preconditions and maximum realization of advantages of euro adoption in Slovakia will depend on the flexibility and readiness of individual businesses, stated the Governor of the National Bank of Slovakia (NBS), Ivan Sramko, at the TOP Management 2007 Conference, organized by the Trend weekly periodical, on Tuesday. He continued by saying that opportunities cannot be realized automatically and benefits of the euro will differ according to company size, business area, degree of involvement in international trade and other factors.
According to Mr. Sramko, the common currency will help improve business conditions, and the advantages of euro conversion will prevail over the disadvantages. In the area of international trade, the NBS expects elimination of the exchange risk related to the euro and decrease of the exchange risk with regard to the dollar, as well as other currencies. Companies will also benefit from a reduction in transaction costs connected with exchange fees. In this regard, the NBS also expects a reduction in administrative transaction costs related to foreign exchange, supplementary accounting, bookkeeping and bank accounts. According to the NBS, one of the advantages of the common currency will be lower capital costs, and it also expects real interest rates, which are currently close to the level of the Eurozone at approximately two percent, to go down to 1 percent to 1.5 percent after euro adoption. Mr. Sramko believes that elimination of transaction costs and exchange risk, along with higher price transparency, will improve the access of business to foreign capital. The NBS further expects, under the condition that the other countries of the Visegrad Group (Hungary, Poland, the Czech Republic) join the Eurozone, growth in total volume of Slovak foreign trade by fifty percent on the long-term horizon. Also, the importance of the European Union (EU) as Slovakia's trade partner is to increase, while the growth rate of trade with the EU is projected at sixty percent in the long run. Following higher influx in foreign investments as a result of reduction of investment risk and the country's credibility growth, as well as international trade growth, the central bank expects Slovakia's total GDP growth rate to reach seven to twenty percent, in the long-term of twenty or more years from now.
On the other hand, according to the NBS governor, though the euro will make price comparison easier, it might create pressure from the side of foreign competitors, and also costs related to euro conversion. Mr. Sramko also said at the conference that the NBS survey, organized in cooperation with the Slovak Statistics Office, shows that on average companies expect cost savings related to euro adoption at a similar level as related costs. Apart from changeover costs, companies do not see any big disadvantages of the euro, such as an increase in competition or market loss, but the majority of companies do expect a moderate increase in turnover and profit. Mr. Sramko commented that the business environment has improved considerably in recent years in Slovakia, but there is still room for improvement. The NBS governor sees shortcomings mostly in the areas of enforceability of laws, information economy, the burden of social insurance contributions, bureaucracy, and the labor market.
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