Euro Adoption in SloveniaEuro Adoption in Slovenia

Boštjan JazbecMember of the Governing Board

The views expressed are those of the author and not necessarily those of the Bank of Slovenia.

ContentsContents

• Macroeconomic Stabilization and Transition• Macroeconomic Perfomance• Maastricht Criteria• Entry to ERM2 and Adoption of Euro• Conclusions

Macroeconomic Stabilization and Macroeconomic Stabilization and TransitionTransition

• Better initial conditions than in other transition economies• Money-based stabilization program• Rehabilitation of the banking sector• Sound macroeconomic performance• Inflation and Exchange Rate

Slovenia Slovenia vs.vs. Greece Greece vs.vs. PortugalPortugal

Synchronization of Business CyclesSynchronization of Business Cycles

-30

-20

-10

0

10

2002 2003 2004 2005 2006

SloveniaEUGermany

Inflation Criterion FInflation Criterion Fulfilmentulfilment

0

1

2

3

4

5

6

7

8

2003 2004 2005 2006

Inflation (current)Inflation (12-monthly average)Criterion reference value

(year-on-year rate, %)

Country Risk PremiumCountry Risk Premium

Exchange Rate DevelopmentExchange Rate Development

239,4

239,5

239,6

239,7

239,8

239,9

240,0

j a s o n d j f m a m j j a s o n d j f m a -0,10

-0,05

0,00

0,05

0,10

0,15 Spot rate Exchange office rate Central rate

EUR/SIT

%

2005 2004 2006

UnemploymentUnemployment

Euroization of Bank Assets and LiabilitiesEuroization of Bank Assets and Liabilities

10%

20%

30%

40%

50%

2003 2004 2005 2006

Foreign currency liabilities / total liabilities

Foreign currency lending / total lending

(%)

GDP Composition by ActivityGDP Composition by Activity

Maastricht criteriaMaastricht criteria at the time of fulfilment at the time of fulfilment

Price stability Exchange rate Interest rates

Inflation (12 month

average, %)

Government balance (% BDP)

Government debt(% BDP)

Participation in ERM II

Long term interest rate (12 month

average, %)

May 2006 2005 2005 May 2006

Reference value 2,7 -3,0 60,0 2 years 5,9

Czech Republic 4 2,1 -2,6 30,5 no 3,5

Estonia 4 4,2 1,6 4,8 since 28.06.2004 3,9

Cyprus 3 2,0 -2,4 70,3 since 02.05.2005 4,4

Latvia 3 6,9 0,2 11,9 since 02.05.2006 3,7

Lithuania 4 2,9 -0,5 18,7 since 28.06.2004 3,7

Hungary 1 3,0 -6,1 58,4 no 6,6

Malta 1 2,8 -3,3 74,7 since 02.05.2006 4,4

Poland 4 1,3 -2,5 42,5 no 5,0

Slovenia 5 2,4 -1,8 29,1 since 28.06.2004 3,7

Slovakia 3 3,5 -2,9 34,5 since 28.11.2005 3,6

United Kingdom 3 2,1 -3,6 42,8 no 4,3

Denmark 4 2,0 4,9 35,8 yes 3,4

Sweden 4 1,2 2,9 50,3 no 3,4

EU-12 2,3 -2,4 70,8 3,5

EU-25 2,3 -2,3 63,4 3,7

Notes: Grey background indicates fulfilment of the criteria.

CONVERGENCE CRITERIA

Fulfiled criteria

Public finances

Timetable for EuroTimetable for Euro

Financial intermediationFinancial intermediation

Catching-up processCatching-up process

Slovenian financial sector (total assets)Slovenian financial sector (total assets)

Increasing indebtIncreasing indebtedednessness

Growth rates of loansGrowth rates of loans

Capital adequacy indicators for Capital adequacy indicators for Slovenian banksSlovenian banks

Challenges aheadChallenges ahead

• Inflation

• Keeping competitiveness

• Financial sector development

• Labor market reforms

Sources:

Financial Stability ReportPrice Stability Report

www.bsi.si