Euro

Slovenia introduces the Euro

How Slovenia became the 13th Member of the Euro Area

, by Marko Javorsek

All the versions of this article: [English] [français]

Slovenia introduces the Euro

On January 1st Slovenia will become the first of the 10 new member states, who joined the EU in May 2004, to introduce the Euro. Unlike Denmark, Sweden and the UK, the new member states cannot opt-out from the European Monetary Union. Why Slovenia decided to speed up the process of introducing the common EU currency and how this was achieved, are the cornerstones of the analysis deriving from this article.

From Dinar to Euro

During most of the 20th century, the legal currency in the territory of Slovenia was the Yugoslav dinar but after Slovenia’s declaration of Independence (June 25, 1991), the Slovenian central bank issued the tolar. The name “tolar” not just resembles the US dollar, but it also comes from the same origin – “thaler”, a European mediaeval silver coin. However, the tolar never became an internationally respected currency and in the first few years, mainly due to the high inflation (117.7 % in 1991 and 201.3% in 1992), it did not gain trust among the population.

Hence, one of the most important political goals in Slovenia during the 90s was to join the European Union and gain economic stability and power. On the way to join the euro area, there have been many economic and political obstacles that Slovenia had to deal with. Five Maastricht criteria had to be fulfilled, the stability of prices being the most troublesome. The inflation had been reduced to a one digit number already in 1996, but the way to reach the reference level (2.6 % in March 2006) was still long.

On the way to join the euro area, there have been many economic and political obstacles that Slovenia had to deal with.

Many governments and ministers of finance tackled the problem of inflation in the 90s and early 2000s, but they were slow in approaching the goal, until the sharp cut in 2004-05. In fact, in March 2006, when all the data for the preparation of European Commission and ECB convergence report was collected, Slovenia was found to be fulfilling all criteria with positive prospects for the future.

The way towards adopting the Euro

After the green light from the European Commission and the ECB, and upon the fulfillment of the two year long period of fixed exchange rate in ERM II, the political decision to accept Slovenia as the 13th member of the euro area was made and on the 1st January 2007, Slovenia will actually adopt the euro as a legal tender.

2 versions of old Yugoslav dinars and 2 versions of the Slovenian Tolar

Preparations to adopt the euro have already started some time ago. Besides the banks that are testing their systems, the dual display of prices has been in force since March 2006. The government hopes that this will help people to get used to the euro so that they will not be cheated by any price increase at the changeover. On the other hand, retailers were not very satisfied, because this measure has caused them a lot of costs. The double-currency period will last only 14 days, unlike in other countries, where this period lasted two months. In practice, this will mean that Slovenian tolar will cease to exist on January 14, 2007, after its 15 years of existence.

Public support

The public opinion in Slovenia is quite in favor of introducing the euro, though the majority of Slovenes are afraid of price increases that may happen. People in Slovenia have never had strong trust in the local currency and are generally well acquainted with the euro due to proximity of Italy and Austria. In my opinion, Slovenes will not experience great shocks due to the introduction Euro and they will quickly adopt it as their own currency.

On the other hand, Bank of Slovenia is unsure, because it will have to hand its responsibility over the monetary policy to the ECB. Although the Slovenian central bank will be equally represented in the ECB, the fear of losing its power still exists.

Conclusion

At the end, I have to mention the political achievement of Slovenia that entered the EU only 13 years after the independence, and just two and a half years after that it accepted the euro as the first new member of the EU. Moreover, this is also a great proof of political and economic stability in Slovenia and its confirmation at the international level.

Image:

* Depiction of Primož Trubar [(June 9, 1508 – June 28, 1586) was a Slovenian Protestant reformer, the founder and the first superintendent of the Protestant Church of Slovenia, a consolidator of the Slovenian language and the author of the first printed book in Slovenian] and the inscription “Stati inu obstati” (to stand and withstand) on the “Slovenian” 1 euro coin; source: free on-line encyclopedia Wikipedia.

Links:

* Slovenia and EMU: Lucky 13? by Sebastian Dullien; source: Eurozone Watch

* ECB: European Central Bank home page

* Changeover procedures, source: Bank of Slovenia

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