European Union finance ministers gave Slovakia the green light today to join the euro zone on January 1st, 2009, urging the country to be ready to fight inflation with tight fiscal policies, a diplomat said.
A letter that the ministers will give to their leaders ahead of an EU summit this month said Slovakia met all criteria to become the euro zone's 16th member, despite European Central Bank concern over the country's inflation.
Slovakia will become the fourth of the bloc's new members that have joined the EU since 2004 to adopt the euro.
"The ministers share the (European) Commission assessment that Slovakia has achieved legal compatibility and a high degree of sustainable convergence, and therefore fulfils the necessary conditions for the adoption of the euro," the letter said.
"They underline the need for Slovakia to be vigilant and to implement budgetary and structural policies supportive of price stability," it added.
EU leaders are now certain to give Slovakia the political green light at the June 19-20th summit to adopt the euro.
EU finance ministers will in early July give the final blessing for the ex-communist country's euro adoption by setting the final exchange rate between the Slovak crown and the single currency.
Slovakia revalued the crown's central parity rate last week in the ERM 2, an exchange rate system that is a proving ground for the euro, by 15 per cent in local terms and 17.6472 per cent in international terms to 30.1260 to the euro.
Many analysts expect the new central parity rate to become the final conversion rate for the crown.
The European Commission, the EU's executive arm, said last month that Slovakia, a country of 5.4 million people, was ready for the euro unlike bigger EU newcomers Poland, Hungary and the Czech Republic.
It brushed aside ECB concerns about the country's ability to keep inflation in check in a sustainable way, the most vague among euro entry criteria.
Other criteria involve having a budget deficit, if any, below 3 per cent of gross domestic product, public debt below 60 per cent of GDP, sufficiently low long-term interest rates and a stable currency in the ERM 2 system.
In the ERM 2, a currency is allowed to fluctuate by +/-15 per cent around the central parity rate.
Some German members of the European Parliament urged the ministers last week to reject Slovakia's euro bid on grounds that its currency had not been stable in the ERM 2 -- two revaluations being the evidence.
But under EU rules, revaluation is permitted unlike devaluation, which can be a reason for rejecting a candidate's euro entry application.