ANNUAL REPORT 2008 - Polymer Bank Notes of the World

its policy rate in several steps by a total of175 basis points, so that it stood at 4.75% inSeptember 2006. The subsequent stabilisationof inflation and the strong commitment of thenewly elected government to the original euroadoption timetable helped to overcome thisbrief episode of economic instability. Moreover,renewed confidence in the euro adoption plansand solid macroeconomic developmentsprovided support for the exchange rate of theSlovak koruna, which started to appreciategradually against the euro. In 2007 Národnábanka Slovenska started to ease its monetarypolicy stance, reducing its policy rate in twosteps by a total of 50 basis points to 4.25%. Inthe light of the expected euro adoption, Národnábanka Slovenska followed the ECB’s interestrate decisions from October 2008, reducing itsrepo rate in three steps by a total of 175 basispoints to 2.5%. Money market interest rates inSlovakia moved broadly in line with the centralbank’s policy rate. Owing to excess liquidity inthe Slovak banking sector, money market rateswere below those in the euro area in the lastfew months of 2008. Long-term governmentbond yields have declined over recent years,reflecting strong market confidence in economicdevelopments in Slovakia.Now that it has adopted the euro, Slovakia canno longer benefit from its currency appreciatingagainst the euro, which helped to containinflation in the past. Following the adoption ofthe euro, the authorities should pursue ambitiouseconomic policies on all fronts. Priority must begiven to the achievement of further sustainableeconomic convergence. The preservation ofa low-inflation environment is crucial in thatrespect. In particular, the rigorous and credibleimplementation of fiscal policy in line withthe Stability and Growth Pact commitmentsis essential to contain inflationary pressuresin the economy. Despite the recent economicslowdown, the authorities should continue toavoid excessive fiscal deficits and proceed withfiscal consolidation so as to reach their mediumtermbudgetary objective as soon as possible.Further efforts should be made in Slovakiato underpin external competitiveness andstrengthen economic resilience. The functioningof Slovakia’s labour market must be furtherimproved and efforts need to be made to tacklethe high level of structural unemployment.There is also a need to improve the businessenvironment in order to enhance productivitygrowth and preserve the country’s attractivenessfor foreign capital.Box 11STATISTICAL IMPLICATIONS OF THE ENLARGEMENT OF THE EURO AREA TO INCLUDE SLOVAKIASlovakia’s entry into the euro area on 1 January 2009 is the fourth occasion on which statisticalseries for the euro area have had to be amended to include additional member countries. Thepreparation of statistics for the enlarged euro area has been coordinated, where necessary, withthe European Commission.The entry of Slovakia into the euro area means that Slovak residents have become residentsof the euro area. This affects statistics for which euro area aggregates are not a simple sumof national data, such as monetary, balance of payments and international investment positionstatistics, as well as financial accounts, because transactions between residents of Slovakia andother euro area residents must now be consolidated.140 ECBAnnual Report2008