(Adds quotes, background in paragraphs 8-10, 17-19)
By Peter Laca
BRATISLAVA, Dec 8 (Reuters) - Slovakia will be hit by the
global financial crisis but euro zone entry in January should
help it avoid deep wounds suffered by some EU peers outside the
euro club, Prime Minister Robert Fico said on Monday.
Turmoil on global financial markets magnified the positive
effects of adopting the single European currency, Fico told
Reuters in an interview.
"I now consider the decision to adopt the euro as even more
important than in 2006 when we confirmed the goal of fulfilling
the Maastricht criteria," Fico said.
"When we see how the financial crisis is wrecking some
national currencies, how some small countries with open
economies are having troubles, we perceive the euro even more
positively."
Slovakia, which will become the 16th member of the single
currency area in January as the first ex-communist EU member
from central Europe, has been spared from a direct impact of the
financial turmoil on its banks.
But the small and open economy, relying heavily on exports
of cars and electronics, will be hit as economic slowdown curbs
demand for its products on key western markets.
The government has already cut its economic growth forecast
for 2009, although the revised prediction of a 4.6 percent rise
should remain one of the highest expansion rates in the EU.
Fico, who took power in 2006 with an agenda to take better
care of the poor, said the euro will make Slovakia even more
attractive for investors, adding to other attractions such as
low labour costs or membership of the internally borderless
Schengen area.
The crisis has boosted the euro's allure in central and
eastern Europe, and Slovakia's neighbours hit by the crisis now
wished they were more advanced in the integration process, Fico
said.
"I saw at the latest V4 meeting (a central European forum)
that mainly Poland or Hungary would welcome it if they could be
on the same line as Slovakia is today," he said.
CRISIS MAY TAME INFLATION
Fico said a key focus was now to prevent inflation from
accelerating after euro adoption, which was a scenario seen in
previous euro zone newcomers and a trend feared by many Slovaks.
But slowing economic activity may curb consumer price growth
in Slovakia because of cooling consumption, Fico said.
"We may see a rare phenomenon; that euro adoption is
followed by slowing inflation and not by its acceleration."
The Slovak central bank last week cut its prediction of 2009
average inflation rate to 2.7 percent, from 3.4 percent.
Economic slowdown will also reduce state budget revenues,
which forced the government to widen the fiscal deficit target
for next year to 2.1 percent of gross domestic product from the
previous target of 1.7 percent.
"If the (GDP) slowdown is much worse ... the only remaining
way is expenditure cuts in areas that are not directly related
to our priorities," he said, reiterating the government would
not touch planned welfare spending.
The 2009 deficit goal would be under the 2.3 percent limit
set for this year, and Fico said he was satisfied with the pace
of fiscal consolidation as many other EU countries were widening
their deficits to combat the financial crisis.
He said projects like completion of the Mochovce nuclear
power plant, a plan for another nuclear station, each worth at
least 3 billion euros, and highway construction should add to
economic growth if the crisis hits the key car industry.
"I am not underestimating the crisis. On the contrary, I am
saying that Slovakia will also have scratches, maybe deeper,
maybe smaller, but it should not be as bad as in some other
countries in European Union."
(Reporting by Peter Laca; editing by Stephen Nisbet)
