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Last Updated: Tuesday, 16 May 2006, 14:34 GMT 15:34 UK
Slovenia to enter eurozone club
Euro note
Soon to replace the Slovene tolar?
The first new entrant since 2001 to the twelve-member eurozone has been agreed by the European Commission.

Slovenia's application to join the single currency on 1 January 2007 was accepted by the Commission.

The application by the former communist state must now be approved by the European Parliament and EU member states, who will set the exchange rate.

However, Lithuania's application for euro membership was rejected because its inflation rate was too high.

If all goes to plan, EU finance ministers will fix the exchange rate between the euro and the tolar, the Slovenian currency, on 11 July.

The euro could be legal tender in the new year, with just a two-week transition period during which it circulates alongside the Slovene tolar.

The Slovenian central bank would have the task of distributing 155 million euro coins and 42 million bank notes by 1 January.

The news was generally welcomed in the small Alpine nation of two million people, which borders Italy and Austria but was formerly part of communist Yugoslavia.

"This is a matter of prestige. I'm boasting to visitors that Slovenia will be the first [of the new EU members] to adopt the euro," said Franjo Bobinac, chief executive of Slovenia's largest household appliances maker Gorenje.

The government hopes that euro membership will boost tourism and foreign investment.

Sticking to the rules

Countries wanting to join the eurozone are supposed to meet economic performance criteria, set out in the Maastricht Treaty which is the legal basis for the euro.

The criteria cover government debt, currency stability and interest rates.

But for Lithuania, it was the inflation target which proved the sticking point.

Prices there are rising very slightly faster than the maximum allowed under the EU's rules.

There was bitterness that despite a strong economy, the country's inflation rate was 0.1% outside the target.

"We can proudly say that we did our best in our attempt to join the eurozone at the start of 2007," Lithuanian Finance Minister Zigmantas Balcytis told the AFP news agency.

"Our economy is one of the best performing in the EU and if there is some problem in our joining the eurozone, the problem is that the EU cannot make a decision on expanding the eurozone," he added.

Hazy timetable

All the countries that joined the EU in 2004 are supposed to be preparing to adopt the euro, but in practice, the timetable for the other countries is unclear.

Estonia, for instance, was at one stage due to be considered alongside Slovenia and Lithuania, but has asked for a year's delay.

Some of the bigger new entrants - such as Hungary and Poland - have large budget deficits that they would have to reduce before qualifying for entry.

The idea behind having strict criteria for adopting the euro was to ensure that economies converged with each other before joining a zone with a single interest rate policy - set by the European Central Bank.

But critics of the euro project say these difficulties are already painfully apparent in the weak economic performance of some of the large economies using the euro, notably Germany and Italy.


SEE ALSO:
EU newcomers prepare to join euro
28 Jun 04 |  Business
Country profile: Lithuania
30 Apr 06 |  Country profiles
Country profile: Slovenia
15 Mar 06 |  Country profiles


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