In the Slovak Republic’s national euro changeover plan (2007), it was decided that:
- From July 2008 to December 2009, there will be a period of compulsory dual pricing.
- The implementation strategy will be a ‘Big Bang’ scenario, which means that the euro will be implemented within the overall payment system from 1 January 2009. During the period from 1 January 2009 and 16 January, there will be a dual cash flow: euro and Slovak koruna (SKK).
- The euro changeover costs will be covered by entrepreneurial subjects without the possibility of a subsidy paid from the state budget.
- The implementation will be centrally managed (by the National Bank of Slovakia, which is the body responsible for the euro changeover) and its aim is to prepare the conditions for a successful euro implementation within national economy in three ways: organisational, marketing and technical.
- The technological conditions for a successful euro implementation will be in the hands of corporates, while the law defines all the basic conditions.
The plan also covered other important factors: security, psychological aspects, economic efficiency, and the relation between the currency and legal and statistical documents.
The Slovak Republic discussed problems with the euro implementation project with reference to a successful project implementation, but the discussion about main economic reasons, possible consequences, potential advantages and disadvantages was absent.
This discussion emphasised that the most important benefits of euro changeover were:
- Decrease in transaction costs.
- Decreasing market risk.
- Simplification of entrepreneurial activities with partners in the eurozone.
The disadvantages identified were:
- The loss of an independent monetary policy.
- Inflation increase.
- Cost increase.
In general, it was expected that the major threat would be price sustainability, i.e. the danger of increased inflation because of the euro changeover.
The Slovak Republic’s Euro Changeover Experience
The euro changeover experience can be summarised in the following way:
- Dual cash flow is a significant marketing aspect – to master it has proven corporates’ ability to change and preparation prior to the changeover. Many corporates (mainly small entrepreneurs) closed their factories and shops during this period.
- The ‘Big Bang ‘ scenario policy in the euro changeover decreased project costs but increased the pressure in terms of the preparation of entrepreneurial, as well as non-entrepreneurial, entities.
- Resetting of ticket machines, cashpoints and other machines was solved by compromise – the impossibility of the application of a dual cash flow for an extended period of time was replaced by immediate euro changeover.
- The success of the euro changeover was down to good preparation as seen in the smooth implementation in shops and stores. The biggest problems were in regional shops with a higher percentage of change-resistant citizens. There were some problems with dual pricing and application of dual cash flow, i.e. accepting cash in both currencies but giving change only in euros.
- Another problem was with certificate stamps – the market demand for this was higher than the real amount of printed stamps.
- The implementation of the euro changeover was a large bank investment. The success of this investment can be seen in a higher demand for credit cards and product offerings that take into consideration the specific situation in the Slovak Republic, i.e. a large amount of coins and an ineffective and insecure way of handling of them.
- In the passenger transport service sector, the implementation of the euro changeover caused delays mainly in the intra-municipal bus transport service, and it forced transport companies to introduce payment by cards. The introduction of card payments reduced cash handling, which was historically difficult to manage, particularly for bus drivers.
- The bank conversion was managed smoothly, with cashpoints operating from the very first day but not all banknote denominations available. However, customers accepted this without complaint. The conversion of banking systems did not make it possible to update some products, for example permanent transfer orders, during the first three days of 2009.
- The promotion campaign, which cost SKK260m, was successful and met its targets.
- The euro changeover also had a positive impact on the banks – during the first three quarters of 2008, citizens’ deposits increased by about SKK51bn. The reason for this was a free and easy cash conversion on accounts.
- A ‘euro pack’ was also introduced by the euro marketing campaign, which contained SKK500 in euro coins. The original function of packs – as a way to recognise new coins – changed when many Slovakians bought them as Christmas presents and created a supply shortage. One local government even gave euro packs as Christmas presents to their retired citizens. Interestingly, the same exercise in Slovenia was unsuccessful because the citizens did not have any interest in the euro packs.
- Slovakians still face a dilemma: “How much money are we supposed to give a waiter as a tip in euro currency?”
- Slovakians are developing terminology and slang expressions in connection with new euro currency.
Proceeding the Euro Changeover Project
After the introduction of euro currency and the period of dual cash flow, a gas crisis developed in the Slovak Republic. The gas crisis, together with the financial crisis, broke out into a broader economic crisis and changed the priorities of many enterprises, as well as their attitudes to the euro.
At the beginning of the euro project, the need to keep inflation under control was stressed. At the present time, inflation in the Slovak Republic is lower than it was before the euro changeover. The currencies of other eastern European countries, such as the Czech Republic, Poland and Hungary, have been losing value and many experts believe that if the Slovak Republic had not joined the euro, the exchange rate would be about SKK40/euro. However, the situation in pro-export economy is not unambiguous – a weak Slovak koruna would give the country’s exporters an advantage over importers.
The reality of economic crisis is that the auto industry, which is the most important commodity of the Slovak economy, is a strong competitor in the global market. At the same time, because the crisis effectively decreases the purchasing power of target markets, the market demand, which would eliminate the advantage of a lower Slovak koruna, decreases as well.
The actual question is with regards to the future after a recovery period. It can be assumed that the markets will increase their demand and at the same time the crisis will support mergers and acquisitions. It will also increase the competitive pressure on auto manufacturers, whether Slovak, French, German, or Korean.
The Slovak Republic was hit by the economic crisis in the third quarter of 2008. Consequently, there has been a decrease in economic growth, production (especially in the car industry) and in demand. During 2008, many entrepreneurs invested money, arguing that the euro changeover would bring inflation. This attitude, together with the psychological effects, has caused a decrease in demand, GDP and economic turnover, while increasing unemployment and cutting production. This has created a new economic framework at a micro- and macroeconomic level.
Presently, the euro is a factor in the financial stability of Slovak economy. However, the role the euro will play in the Slovak economy after the economic crisis ends is questionable.