Will Slovak convergence be steep and stable?

Key macroeconomic and financial stability indicators suggest that Slovakia has created a stable launch pad for accelerated real and financial sector convergence with the euro area and some of its neighbours that joined the EU at the same time. This is the result of macroeconomic stabilisation measures and the steadfast implementation of a comprehensive package of structural reforms. These policy choices enabled Slovakia to more than close the reform gap that had opened up with its neighbouring EU aspirants before 1998 and to become a prime recipient for growth-enhancing foreign direct investment. Nevertheless, some stability challenges that are typical for converging economies still lie ahead - both before and after Slovakia's euro adoption, which is planned for 2009. A continued skilful use of macroeconomic and structural policies will help to foster steep economic catching-up, while preventing potential medium- and long-run macroeconomic and financial sector instabilities. Fiscal policy will continue to play a pivotal role in the policy toolkit. It will in particular have to avoid pro-cyclicality and to maintain investor confidence. Complying with a fiscal adjustment strategy anchored in a credible framework, as presented in the last Slovak convergence programme, will be crucial.

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