VZCZCXRO2098
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHSL #0315 1901726
ZNR UUUUU ZZH
P 081726Z JUL 08
FM AMEMBASSY BRATISLAVA
TO RUEHC/SECSTATE WASHDC PRIORITY 1824
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS BRATISLAVA 000315 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR LNORTON 
USDOC FOR 4232/ITA/MAC/EUR/MROGERS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD LO
SUBJECT: SLOVAKIA TO JOIN THE EURO ZONE: IT'S OFFICIAL 
 
REF: A. BRATISLAVA 249 
     ¶B. BRATISLAVA 216 
 
¶1. (SBU) On July 8, European Commissioner for Economic and 
Monetary Affairs, Joaquin Almunia, officially welcomed 
Slovakia as the 16th member of the Euro zone as of January 1, 
¶2009.  As widely expected, the final conversion rate between 
the Slovak Koruna and the Euro was fixed at the current 
central parity rate of 30.126 SKK/EUR by European Ministers 
of Finance.  Beginning in August, the prices of all goods and 
services in Slovakia will be recalculated and displayed in 
both Euro and Koruna.  Against the backdrop of this signal 
achievement, and in anticipation of a potential backlash 
among voters, PM Fico continues to threaten "irresponsible 
businesses" against price speculation.  The Ministry of 
Finance announced the establishment of a new government body, 
a so-called "price council" led by PM Fico, whose mandate is 
to monitor the price growth of basic foodstuffs and services 
in comparison with neighboring countries. This proposal has 
been met with criticism from the opposition and members of 
the business community, but it is clear that even the MoF 
still does not know how the council, in actual practice, will 
carry out the PM's mandate.  In the meantime, the price 
council proposal likely resonates with the public. 
 
¶2. (U) Following the recent excitement and turmoil stemming 
from accusations by the opposition that the GOS, in 
particular Finance Minister Pociatek, leaked information to 
Slovak financial groups and banks in connection with the May 
2008 revaluation of the central parity rate to 30.126 
SKK/Euro, the official announcement today of the final rate 
was almost anti-climactic.  The final conversion rate of 
30.126 follows an unprecedented course of growth for the 
Koruna, which led the EU to break precedent by revaluating 
twice (first in May 2007, then in May 2008) the central 
parity rate (reftel A).  Fluctuations in the exchange rate 
could occur until the end of the year due to differences in 
market interest rates and changes in investment patterns, but 
any such fluctuations are expected to be slight. 
 
¶3. (SBU) With today's announcement, Slovakia becomes the 
first Central European EU member and only the second 
post-Communist country to secure a place in the Euro zone. 
That it superseded Hungary and the Czech Republic is no small 
source of satisfaction here.  Another feather was added to 
Slovakia's cap today with the Fitch Agency's decision to 
upgrade Slovakia's foreign currency rating from "A" to "A 
plus."  While Finance Minister Pociatek and Central Bank 
Governor Sramko are celebrating in Brussels, PM Fico has 
adopted a sober, and at times, stern rhetoric in his public 
remarks about what Euro adoption will mean for the citizens 
of Slovakia.  Fico has made it clear that he intends to do 
everything within the government's power to minimize any 
negative effects of Euro adoption on average citizens (reftel 
B).  At the same time, his rhetoric suggests that he is not 
overly concerned about the potential effects of such measures 
on the business environment or community.  Although it is not 
yet clear how the new "price council" will work in practice 
-- and Ministry of Finance officials have acknowledged the 
inherent challenges ahead -- Embassy contacts suggest that if 
prices in Slovakia did appear to be out of line with prices 
in neighboring countries, the GOS would probably respond with 
a revision to the law on prices, which would enable price 
regulation.  FinMin Pociatek told Pol/Econ Chief at a July 7 
event that this response would be a "last resort" and that 
the government hoped that the signals of vigilance it was 
conveying would have a chastening effect on potential 
speculators.  Comment:  Slovakia's entry into the Euro zone 
is an impressive achievement, particularly in light of the 
lack of credibility the Fico government initially had with 
financial experts in Brussels.  Post will monitor 
developments with respect to the "price council" and will 
follow up with in-depth reporting on the impact of this, and 
other GOS initiatives, on the business climate. 
OBSITNIK