Five years after the euro coins and banknotes came into circulation on Jan. 1, 2002, Slovenia became the 13th European state to adopt the single currency, the first enlargement of the euro zone.

Among the 10 new members which joined the European Union (EU) in 2004, Slovenia was the first to be admitted into the subset of the EU sharing the same currency.

Although every new EU member is committed to join the euro zone as provided in their accession deals, Slovenia's quick adoption was its own choice based on calculation of gains and losses. By joining the single currency, Slovenia is expecting that its economy will reap benefits soon.

EXPAND TRADE

It is widely believed that the entry into the euro zone will help expand the trade volume between Slovenia and other euro-zone countries.

The introduction of a single currency removed the final obstacle to the free movement of goods, labors and capitals, integrating the whole euro zone as a single market.

Within the euro zone, there is no more need to exchange national currencies, which not only saves the transaction costs, but also removes exchange rate risks. This will promote the economic interdependence among its members.

Recent studies have shown that participation in a monetary union increases trade between its members to a considerable extent, which does not happen at the expense of trade with other partners.

According to some estimates quoted by the EU, the positive trade effects of euro adoption alone will raise the gross domestic product (GDP) by some 10 to 25 percent over 20 years in central European countries.

PROMOTE INVESTMENT

By adopting the euro, Slovenia, a former Yugoslav republic with a population of 2 million, is also welcoming more investment both from other euro-zone countries and from outside EU.

The free movement of the single currency within the single market gives a large boost to the integration of financial markets across the euro zone. Investors, such as banks, are no longer limited to local markets.

This in turn will facilitate and promote investment and growth. By reducing currency risks, Slovenia will become an even more attractive destination for foreign investment and trade.

"Slovenia will be more recognizable and not just as a tourist destination, but especially for investors from the broader European business environment," said Slovenian Finance Minister Andrej Bajuk.

REDUCE PRICES

Many Slovenians feared that the adoption of the euro might lead to higher inflation, although economic theory and officially-committed studies show that the euro can actually help its member countries to curb inflation.

A single currency brings price transparency to the euro zone, making it easier for consumers and businesses to compare prices for goods and services within different members.

This has the effect of increasing competition among suppliers and keeping a downward pressure on prices in the euro zone, which will eventually benefit consumers.

The figures, however, are discouraging.

The Slovenian Statistical Office said on Friday that Slovenian inflation rate rose from 2.3 percent in 2005 to 2.8 percent in 2006. Before changing over to the euro, prices in December increased by 0.4 percent compared with the previous month, with the main hike in fresh vegetables, restaurants and some infrastructure services.

The government attributed the increase to seasonal factors, arguing it had no connection with the upcoming adoption of the euro.

NATIONAL PRIDE

Besides economic considerations, joining the euro zone is also taken by the Slovenian government as an opportunity to boost the country's self-confidence.

"The euro isn't important only for our economy, we also expect psychological benefits... we are coming closer to the most developed part of the EU and this will give (citizens) confidence, " Slovenian Prime Minister Janez Jansa said in a recent interview.

For many Slovenians, the euro is no strange thing, since much of the population is already familiar with the currency from shopping trips to Austria and Italy, the two neighboring euro-zone countries. A recent survey showed that about two-thirds of Slovenians support the adoption of the euro.

The euro may not be all good to Slovenia.

Some experts warned that upon entry into the euro zone, the Slovenian government would no longer be able to adjust monetary policy and exchange rate, and macro-control its national economy.

However, the European Central Bank, in charge of the monetary policy for the whole euro zone, is unlikely to set its interest-rate policy to fit the likes of small members like Slovenia. Instead, it will focus on a general picture largely determined by countries such as Germany, France and Italy. Sometimes, the resulting policy may be detrimental.

Source: Xinhua