Suppliers welcome Slovakias impending euro entry

By Lyle Frink
Suppliers are looking forward to Slovakia joining the euro zone, but they are worried that the Slovak crown will be fixed at a euro rate that is too high.
 
"It depends on how it will be done. From 33 to 30 crowns [to the euro] is a 10 percent difference," said Jozef Banas, manager of a Grupo Antolin plant in Bratislava, Slovakia.
 
A high exchange rate will make Slovak labor more expensive and erode the country's cost advantage. A lower rate could lead to higher inflation.
 
The value of the crown is jumping ahead of the country's expected entry into the euro zone next year.
 
On June 2, the currency hit a new record of 30.3 crowns to the euro, up 7.6 percent from a rate of 32.6 crowns just two months earlier.
 
"There could be some problems for small companies. But as the automotive industry is export-oriented, having the euro has a lot of advantages," said analyst Martin Lenko at the Bratislava headquarters of VUB Bank.
 
The currency was also revalued upwards by the country's national bank to a central rate of 30.126 to the euro on May 29, an increase of over 17 percent. The Slovak government has pledged to keep the currency within a 15 percent margin, above or below this level.
 
The currency's rapid appreciation has both economic and political roots. Slovakia was the only central European country to meet the so-called Maastricht criteria for euro entry and is expected to change over to the common currency on January 1, 2008.
 
Slovak Prime Minister Robert Fico has called for the strongest possible exchange rate on national TV.
 
The Slovak economy is growing, anchored by the ramp-up of production at the car plants operated there by Volkswagen, PSA/Peugeot-Citroen and Kia Motors. The added production has also led to higher output for the car companies' local suppliers.
From: Automotive News Europe

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