The Slovenia Times

Tolar included in the ERM II



The Exchange Rate Mechanism II (ERM II), which was introduced on January 1st,ÿ1999 at the beginning of the third stage of the EMU, is a mechanism that links the currencies of non-euro EU member states to the euro. The decision to include the Estonian kroon, the Lithuanian litas and the Slovenian tolar in ERM II was taken on June 27th, 2004 and the compulsory intervention rates for these currencies were established on June 28th, 2004. At the request of the Slovenian authorities, the ministers of the euro-area EU member states, the president of the European Central Bank and the ministers and the central bank governors of Denmark and Slovenia decided, by mutual agreement, following a common procedure involving the European Commission and consultation with the Economic and Financial Committee, to include the Slovenian tolar in the Exchange Rate Mechanism II (ERM II). To ensure that the non-euro member states participating in the mechanism orient their policies towards stability, ERMÿII fosters convergence and thereby helps them in their efforts to adopt the euro. As ERM II membership is one of the convergence criteria for the eventual adoption of the euro, new member states are expected to join the mechanism at some stage. The operating procedures for ERM II were laid down in an agreement between the European Central Bank (ECB) and the national central banks (NCBs) of the non-euro EU member states. The agreement on the participation of the tolar in ERM II is based on a firm commitment by the Slovenian authorities to continue to take the necessary measures to lower inflation in a sustainable way: these include most notably measures aimed at furthering both the liberalisation of price administration and the advancement of de-indexation, in particular wages and certain social transfer setting mechanisms. Continued vigilance will be needed so that domestic growth, particularly in wages, is in line with productivity growth. The authorities, together with the responsible EU bodies, will closely monitor macroeconomic developments. Fiscal policies will have to play a central role in controlling demand-induced inflationary pressures and financial supervision will assist in containing domestic credit growth. Structural reforms aimed at further enhancing the economy's flexibility and adaptability will need to be implemented in a timely fashion so as to strengthen domestic adjustment mechanisms and to maintain the overall competitiveness of the economy. According to the Slovenian leadership, participation in ERM II basically means having a stable pricing policy, which maintains both wage and pensions growth in line with the euro's inflation rate. The independence of Slovenia's Central Bank will be diminished due to the strict external control over the fiscal, economic and monetary activities. Participation in ERM II will have a powerful effect on the Slovenian economy. Leading Slovenian managers strongly support it, although some think that the central rate of the Slovenian tolar has been set too high. The major issue concerning managers is getting caught between the fixed euro rate and a spiralling inflation rate. If this scenario were to occur the consequences for the Slovenian economy would be disastrous. What about the ordinary Slovene? Having heard of the enormous price rises after the introduction of the euro in most of the European member states, they expect the same to happen in Slovenia. Otherwise, no one is grieving over the loss of the tolar, a barely decade-old Slovenian currency. Money is money - what does matter is that prices do not rise too substantially.


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