Case 4: Slovakia
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Case 4: Slovakia

Does east follow west to the euro?

Case 1: Czech Republic

Case 2: Hungary

Case 3: Poland

Slovakia’s public finances are in good condition. For example, it recorded national debt of just 34.5% of GDP in 2005, compared with 107.5% for Greece and 106.4% for Italy. Inflation, though, has been persistent, compared with the rest of the front-runners for early euro adoption, says Kai Stukenbrock, credit analyst at Standard & Poor’s says. The central scenario is for Slovakia to adopt the euro in 2009, although the chances of fiscal discipline slipping have been increased with the arrival of a new government.

The starting point for the budget deficit this year was 2.8%, but analysts now predict that it may come in as low as 2.2%. “So there is some room for them to fulfil their [social] agenda, while still maintaining discipline,” says David Heslam, sovereign analyst at Fitch Ratings.

According to research from Alex Patelis, FX strategist at Merrill Lynch, “despite official commitment to euro entry in 2009, markets remain uneasy about the actual policy course of the new, populist-leaning Smer-led cabinet.” Smer emerged as the strongest party after general elections in June.

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