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Slovenia Business Week no. 01: Euro: Short Term Hassle, Long Term Benefits for Businesses

Businesses in Slovenia are among those that have shouldered the biggest burden, in energy and cost, of preparations for the changeover to the euro, but they are also among those standing to gain the most from its use

Businesses in Slovenia are among those that have shouldered the biggest burden, in energy and cost, of preparations for the changeover to the euro, but they are also among those standing to gain the most from its use. Yet the benefits will go beyond companies, as the Slovenian economy as a whole is expecting to reap the rewards of entering a monetary union of 13 countries and over 300 million people.

Slovenian companies have faced quite a hassle in getting ready for the switch. The most demanding task was on the banks and retailers, while software companies also had their work cut out for them rushing to prepare software for their clients ahead of the changeover.

Some of the problems that businesses have had to deal with have been very specific: items of extremely small value have had to be bundled, parking metres and vending machines fitted with readers for euro bills and coins, ticket forms redesigned to include the value in euros.

Most enterprises now say they are well prepared for arrival of the new currency. Whereas Slovenia's leading exporters had mostly adjusted even before Slovenia vied for the eurozone, firms doing the bulk of their business at home were forced to put in extra work. The cost of the changeover for retailers alone is estimated at around EUR 15m.

Despite the general agreement that things are mostly in place ahead of the big day, the Bank Association of Slovenia said this week that some retailers were being slow to stock up on euro coins and bills which they will need in the first few days after New Year's.

"The retailers probably want to cut costs, but if they return tolar cash after New Year's they can face fines. This would also extend the elimination of tolars from circulation," said the head of the association, Dusan Hocevar.

Meanwhile, the banks are said to be well prepared for the switch, and they expect no problems with automatic teller machines. "The results of testing are encouraging," according to Aleksander Kurtevski, the director of ATM network operator Bankart. This was confirmed by Banka Slovenije Governor Mitja Gaspari and Finance Minister Andrej Bajuk on Friday, 29 December, who assured the public that contingency plans had been drawn up.

The central bank announced in mid-December that all the ordered euro cash - around 74 million notes and 235 million coins - had arrived in Slovenia and that all the banks had been supplied with the necessary cash. Large companies, too, were receiving their orders of euros in line with plans.

The euro is expected to bring extensive benefits for Slovenian companies and the economy, which is to gain in competitiveness as a result of the inclusion in the single economic area. The greatest benefits are expected by companies doing trade in the eurozone, whose members include some of Slovenia's key trade partners, including Germany and France.

Meanwhile, consumers have been concerned that companies will use the euro for unfair gains in the form of unwarranted price increases. In a bid to promote responsibility in this area, the two leading business associations in the country, the Chamber of Commerce and Industry of Slovenia (CCIS) and the Chamber of Craft Industries (OZS), called on its members not to abuse the switch to raise prices.

According to the CCIS, the companies that have signed up to the price code expressed their own will to do so. "They wanted to contribute to a stable business environment in Slovenia, trust among business partners, customers and consumers, and confidence in the euro as the national and European currency," the CCIS said in early December.

The Slovenian economy is entering the eurozone healthy, enjoying one of the strongest spells of growth since independence in 1991. According to the Statistics Office, the Slovenian economy expanded by an annual 5.6% in the third quarter of 2006. Other indicators are also robust, with the EU-compatible inflation rate for the year standing at 2.5% and the anticipated budget deficit expected to be well below the EU-set threshold of 3% of GDP.

Government officials expect that the eurozone will bring even greater stability for the Slovenian economy. While this is echoed by officials from the EU, they have also been quick to point out that Slovenia's work is not over as of 1 January. Keeping public finances stable is an ongoing process, which will be made even more difficult by the ageing population.

As a result, the European Commission has addressed a number of warnings to Slovenia to take measures in its pension system in order to deal with the demographic threat to stability of public finances. The Commission believes Slovenia's low public debt should not be an excuse for inactivity, as the country needs to prepare for a rainy day.

This view is upheld by leading Slovenian economists, including Janez Sustersic, head of the Institute for Macroeconomic Analysis and Development, the government's leading macroeconomic think-tank. He said in October that the current strong economic spell is "an opportunity to draw up reform measures, to put them forward and pass them, so as to have this reflected in moderate growth next year".

The importance for fiscal measures aimed at shoring up the stability of public finances will become greater because of the leverage the country is to lose in the area of monetary and exchange rate policy as a result of membership in the eurozone. Banka Slovenije will no longer be able to act independently in the field of interest rates.

Nevertheless, Slovenia's central bank will continue to be busy as the country's inclusion in the European Monetary Union means that it becomes a part of the decision-making bodies at the European Central Bank. While retaining its role as a bank regulator at home, Banka Slovenije will also play an important role in shaping monetary policy in the eurozone along with the other 12 members.

Source: Slovenian Press Agency STA

Author: STA, Slovenian National Press Agency