Global Economics

Slovakia Adjusts to the 'Teuro'


There's a widespread belief that prices will climb as a result of the country's recent switch to the European currency

It is 15 minutes past midnight. A short while ago, the last of the New Year's fireworks exploded over the Danube. The show of cascading lights was exceptional in that it was clearly visible. No foggy haze concealed the fireworks this time, as has happened every other time I've spent New Year's Eve in Bratislava. While I can't say that I really noticed the "euro theme" that the show's organizers had promised, the spectacle did seem rather long and impressive, given the modest means of this small Central European capital. But there weren't many of the city's residents gathered on the New Bridge and the shoreline to actually witness the fireworks. Most Bratislavans had abandoned their frozen but snowless city for the holidays to spend a more pleasant Christmas in the mountains.

"The teuro is coming, let's not get too excited," one of the few Bratislavans watching the show notes ironically. "Teuro" is a play on words, combining "euro" with the German teuer (expensive), reflecting the widespread belief that the European currency brings with it higher prices. Rather than Slovaks, it seems for the most part that foreigners have come to Bratislava tonight to celebrate the arrival of the euro. Their strong presence here is testimony to the miracle of cheap airline tickets, a factor that unites Europe 10 times more effectively than the Lisbon Treaty and the European Commission put together.

The tourists, who in recent years have included a noticeably large number of Slovenes, Croats, and Serbs, were the only ones lining up at the bank machines right after midnight to see if the promised euros would come out. But even they overlooked my local Slovenska Sporitelna bank machine on Hviezdoslavovo Square. And so I was able to calmly insert my Slovak debit card, punch in my PIN, and, for the first time in my four years of living in Slovakia, decide whether I wanted 10, 20, 50, or 100 euros rather than the Slovak koruna. I chose a Slovenska Sporitelna machine, having received a tip from Igor Barta, the government's commissioner for euro matters, that it was the best-prepared Slovak bank for the changes. Slovenska Sporitelna is, of course, a unit of the Austrian Erste Bank Sparkasse, which has been using the euro since it was launched. My source proved to be bang on. After a few seconds of whirring noises, the bank machine produced a crisp, new 20-euro banknote, just as it would have done in 15 other EU countries. Then, to confirm my transaction, the machine printed out a paper slip stating that some 600 Slovak korunas had been removed from my account.

My little experiment on a dark Bratislava square amounts to an experience that Poles, Hungarians, Lithuanians, Latvians, Estonians, and even Slovakia's comparatively richer former compatriots in the Czech Republic will not have in their own countries for another few years. Following Slovenia, Slovakia is now only the second post-communist country to adopt the euro. In so doing, the Slovaks have broken away from their post-communist neighbors in Central Europe and definitively put to rest their country's image as a laggard in the Visegrad Four: Poland, Slovakia, Hungary, and the Czech Republic.

RICH MAN, POOR MAN

Since the breakup of Czechoslovakia at the beginning of 1993, Slovakia's public life has been marked by a number of characteristics that I, as a Czech, felt were unenviable. I definitely never envied the Slovaks for their former authoritarian-style prime minister, Vladimir Meciar, or for the series of weak presidents they've had since becoming independent or for the seemingly ubiquitous presence of ex-communists in their society. I also never envied them for their Slovak koruna. Created when the Czechoslovak federation ceased to exist, the new Slovak currency had all the characteristics of the rough-and-ready currencies of other newly independent post-communist states, right down to the would-be modern look of its banknotes and coins.

When it was launched, the Slovak koruna had a 1-to-1 exchange rate with the Czech koruna, but it quickly weakened. It thus created an additional and very visible reason for Czechs to believe that, at least as far as their wallets were concerned, it had been a good idea to let the Slovaks "take a hike." The Czech koruna, which even in its appearance seemed to follow in the tradition of the Czechoslovak koruna, quickly became a hard currency in relation to its Slovak counterpart, making Slovakia a cheap country to visit for Czechs. This changed for a time in early 1997, when the Czech Republic entered a recession while Meciar's Slovakia stayed afloat despite its growing debt load. At the time, the Slovak koruna even briefly became stronger than its Czech counterpart, but it was for such a brief time that today many Slovaks don't even remember it.

Later, the necessity of paying off the debt left behind by Meciar's government brought hard times to Slovakia. As a result, the currency fell to three-quarters of the value of the Czech koruna. In 2002, this ratio between the Czech and Slovak korunas stabilized and both started to strengthen against both the euro and dollar.

With that, the Slovak currency, along with the rest of the country, jumped back into Central Europe and the Visegrad Four—still a respectable grouping at the time—with both feet. The years leading up to EU membership in 2004, as well as the next couple of years, saw the economies of the Visegrad Four go through something of a golden age. Slovakia, more than any other country in the region, was able to make the most of it. In the fall of 2002, the coalition government of Mikulas Dzurinda was miraculously put together with a shared liberal approach toward the economy. This government managed to establish a flat tax and revamp the tax system to make it more transparent, thereby turning the former backwater of Slovakia into an interesting country for foreign investors.

Nevertheless, these changes in Slovakia had little impact on the exchange rate with the Czech koruna because the Czech Republic was also going through a period of economic expansion, with one new production plant after another sprouting up around the country. Wages rose in both countries, although in the Czech Republic they sometimes increased at an even faster pace than in Slovakia, in part because Slovakia continued to pay off debts accumulated under the Meciar government but also because the Slovak government committed 100 billion korunas from privatization proceeds toward reforming the pension system. Above all, Slovakia's economic growth rate reached double-digit figures, which made it easier for the government in Bratislava to meet the criteria for joining the eurozone. In that sense, the adoption of the euro on 1 January is a reason for this country to feel proud, especially from the point of view of Czechs, who often tended to look down on the Slovaks after the division of Czechoslovakia.

THE TEURO

But the euro feels like an expensive source of pride. I got some first-hand experience with just how expensive on New Year's Day. Retailers, who are required to accept Slovak bills and coins until 16 January but can return euros to customers as change, kept their doors closed on the first day of the year.

Luckily, the taxi driver who came to pick me up at the hotel didn't shut down his operations. "All year long, I tucked away euros and now I'm fine," he said, as he showed me a bag full of euro coins. A few moments later, when I paid him with a 1,000-koruna note, I got back a 20-euro note and handful of euro change. What better confirmation that Slovakia has changed into a country of "euro coins"?

Nevertheless, Slovakia is by far the poorest country in the eurozone. At a rate of 30 Slovak korunas per euro, the average monthly wage amounts to less than 750 euros, only half that of Slovenia, and one-fourth to one-third of those in richer eurozone countries. "We are pointing out to people that euro coins are not just small change," Barta, the government's point man for the euro, said. "People can't just be throwing them around as tips."

This is all taking place in a country where the 20-koruna note had been in heavy use right up until the official adoption of the euro, and where even 100 Slovak korunas is worth less than the 5-euro note, the smallest euro bill. And what is more, most Slovak bank machines will not be dispensing the 5-euro bill. In this situation, many Slovaks have switched wallets following the adoption of the euro, and some have even acquired special pouches for euro coins. Those who earn a monthly salary of less than 10,000 korunas, still a large proportion of the population, especially outside of Bratislava, are getting ready to receive just 300 euros as their January pay.

"One of the consequences of the euro is that I'll never be a millionaire," complained the popular Slovak actor Jan Labuda recently. "I'll never manage it in euros."

Meanwhile, on the other side of the country, the euro is raising the hackles of a grocery shop clerk in the most famous Romani ghetto of Slovakia, Lunik XI in the eastern city of Kosice, where almost all of the residents live off monthly social welfare payments of a few thousand korunas. "Look at this, nothing but coins. I'll never have euro banknotes here," she told a friend of mine who works for a Slovak daily.

Not everybody is upset by the euro coins. In a Tesco department store, a Slovak pensioner admires her new coins. "Pretty things, these euros. Pretty," she says. "It just depends on how many of them there will be. Especially if we're going to go through this crisis, as they keep saying."


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