Slovenia: Eurozone Membership Approved for January 2007; Gdp Growth Accelerates to Over 5% in Q1, Economic Reforms Blocked by Coalition Discord

Summary

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EU finance ministers finally approved Slovenia's entry into the eurozone at the start of next year with the permanent conversion rate fixed at SIT239.64 to the EUR, the same as the central rate in ERM-II. Eurozone membership is popular in the country and the government is particularly pleased at the prospect of fulfilling its long-standing ambition, being the only new EU member to do so. Though well advanced, the EC has urged the government to speed up preparations for the introduction of EUR notes and coins and special measures are to guard against price increases. Membership of the Schengen free travel zone is to follow in H2 2007. After 4% expansion over the last two years, GDP growth accelerated to 5% in Q1 with a particularly strong showing by fixed investment and exports. Unemployment has now fallen to a 15-year low and prospects are favourable for growth to be sustained in the 4-5% range. Inflation has recently accelerated, but at 3.4% in May is not causing concern - wages are increasing at a steady 5% rate. The budget and current account deficits are expected to remain below 2% of GDP. But the government is struggling to execute its ambitious economic reforms because of opposition from some coalition parties and the unpopularity of the reforms and it has backed away from introducing a flat tax. It still hopes to make the labour market more flexible by introducing a Danish-style "flexicurity" model and to proceed with privatisation.

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Slovenia: Eurozone Membership Approved for January 2007; Gdp Growth Accelerates to Over 5% in Q1, Economic Reforms Blocked by Coalition Discord

Thirteenth member of eurozone, Schengen membership to follow

At the EU finance ministers meeting on 11 July, Slovenia was formally given the go-ahead for joining the eurozone on 1 January 2007. The permanent EUR conversion rate for the tolar (SIT) is fixed at SIT239.64, its central rate in ER...

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