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Euro may increase Slovakia’s charms

Slovakia’s now near-certain entry into the eurozone in January 2009 should help bolster the country’s credit ratings and improve investor sentiment towards the country, say bankers.

Last week’s recommendation by the European Commission that Slovakia should be allowed to adopt the single currency at the start of next year has still to be formally ratified by EU finance ministers. But the expectation that they will rubber-stamp the EC’s recommendation has helped to strengthen the Slovak koruna, which has been trading at all-time highs against the euro in recent days at Sk31.6 to the euro. The final entry rate will be confirmed in early July. "We expect that the approval process in European institutions will be solely of a formal nature after the unambiguously positive stand of the European Commission. Thus, in our opinion, the probability of refusal of Slovakia’s accession to the eurozone is almost zero," says Villiam Patoporsky, head of research at UniCredit Bank in Slovakia.

Gillian Edgeworth, an economist at Deutsche Bank in London, says Slovakia’s final acceptance for monetary union membership could give a boost to its creditworthiness. "Assuming confirmation of Emu entry in early July, it is possible that we will see at least one or two of the rating agencies upgrade Slovakia’s rating," she says.

In the wake of the EU’s approval of Slovakia’s euro adoption goal, Moody’s Investors Service, which has an A1 sovereign rating for Slovakia, commented: "Upcoming entry into the eurozone is a deterrent to external financial shocks.

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