Joaquín Almunia
European Commissioner for Economic and Monetary Affairs

Practical preparations for the introduction of the euro in Slovenia

Visit to Slovenia
Ljubljana, 28-29 April 2005

Ladies and gentlemen,

It is a pleasure for me to be in Slovenia today and to have the opportunity to speak about the future integration of your country into the euro area. In particular, I would like to share my views with you on the importance of timely preparations for the introduction of the euro in Slovenia.

I am especially glad to notice that Slovenia, being a country with a solid economic performance, is also one of the most enthusiastic among the newly acceded Member States about the introduction of the euro. Indeed, Slovenia made it clear that it intended to join the euro area as soon as possible after joining the European Union and many of its citizens support this idea with only 25% of the population wanting a late introduction of the euro. This confirms that the Slovenian citizens are aware of the important benefits and opportunities that the single currency will bring for their country.

Slovenia is making particular efforts to comply with the Maastricht convergence criteria and duly joined ERM II on 28 June of 2004. Your country is indeed well on its way to meeting the requirements, although any form of complacency should obviously be avoided. Macro-economic conditions can change abruptly and vigilance remains necessary, particularly for inflation for which there is a real risk of overshooting of the criteria. However, I am confident that as a young and dynamic country, Slovenia will meet this challenge with the same degree of success as many of your earlier ones.

When it comes to preparing the introduction of the euro, I firmly believe that the European Union in general and the European Commission in particular, should be your active partners. We must do all we can to ensure that future introductions of the euro are true success stories. The introduction of the euro as a currency in 1999, and subsequently the cash changeover in 2002, was rightly perceived by the public as a major achievement of European integration. Similarly, successfully introducing the euro in Slovenia will benefit Europe as a whole, and indeed also the euro. Therefore, we have a collective role and responsibility and the Commission will continue to be closely involved and to assist you in this task.

Ladies and gentlemen,

Successful entry into the euro area requires not only fulfilment of the Maastricht criteria, but also extensive and timely practical preparations. We should bear in mind that it took six years in total for the present euro-area countries to be fully prepared. However, I am sure that applying the lessons of the past will allow us to speed up the process in the future. In Slovenia's case, the importance of careful practical preparations is particularly relevant since the country plans to introduce the euro in a so-called "big bang" scenario. Under this approach, euro banknotes and coins become legal tender on the same date as the country's entry into the euro area. This is also the date at which the irrevocable conversion rate enters into effect.

I will try to draw some lessons from the previous changeover, which was a great success - although there is always room for improvement. Let me focus on three key lessons which I consider to be preconditions for a successful changeover:

(i) The first and main lesson from the previous changeover is that careful and pro-active preparations at national level clearly pay off. In other words, detailed preparations result in a smoother and easier transition to the euro.

(ii) The second prerequisite is that the transition from the national currency to the euro needs to be as short and swift as reasonably possible.

(iii) The third and last lesson is that the mental or psychological changeover by citizens is by far the most difficult part. This applies to issues such as the erroneous perception of price increases, or to the difficulty for many people to think and calculate in euro.

For each of these three lessons, I will try to draw up some operational consequences for Slovenia.

(i) Let me start with my first point: the importance of careful and timely practical preparations.

The experience of the first-wave countries clearly shows that countries which invested heavily in careful, pro-active and extensive preparations were rewarded for their efforts, in terms of the speed of the changeover, the public acceptance of the new currency and the smoothness of the transition to the euro.

National governments and the public sector in general have a particular role and responsibility. Their primary task is to draw up a comprehensive changeover scenario at an early stage. This general framework will allow the private sector and the general public to initiate their own preparations. Public administrations also have a general role of co-ordination, information and dialogue with various economic sectors and the general public.

What are the practical implications of this first lesson for Slovenia? Personally, I see two priorities for action:

First of all, Slovenia's target date for the accession to the euro area is scheduled for the beginning of 2007. This means that less than two years remain to finalise and implement the blueprint for the transition. In this respect, the Master plan for the Euro Changeover jointly approved in January 2005 by the Bank of Slovenia and by the Slovenian government constitutes a very good starting point for the country's preparations. This Master plan foresees to launch a broad dialogue involving all the relevant economic sectors which will allow taking all relevant input on board before its final approval scheduled by autumn 2005. This is one of the keys to successfully implementing the whole programme in time.

In order to assist future euro-area candidates, the Commission has re-launched the Public Administration Network (PAN II). In the past, the PAN was an essential forum for discussion and exchange of views among the national representatives in charge of the changeover in their respective countries. It will again play a very important role in the future.

However, a great deal of further work needs to be done. Several issues remain to be decided. It is extremely important that all the practical consequences of the introduction of the euro are anticipated well in advance.

(i) A second priority for action is an ambitious information programme. The better citizens are informed, the less apprehensive they are about changing currencies. We know from experience that the primary cause of fear and resistance is ignorance. According to the latest Commission's Eurobarometer survey of October 2004, 57% of the Slovenian population consider themselves to be well informed about the euro. This is better than the average of the newly acceded Member States but this is still not sufficient since the entire population should be very well informed about their new currency.

There are still 36% of the population who feel ill-informed and, as a probable consequence, 25% of the citizens would like to have an introduction of the euro as late as possible.

In the area of information and communication as well, the European Commission stands ready to help in the form of a partnership agreement. It is prepared to share part of the financial burden under its communication programme.

The time has come to set up and implement a comprehensive information plan in Slovenia so as to make sure that Slovenian citizens are well informed about their future currency.

(ii) Let me move on to the second prerequisite for a successful changeover. We have learned from past experience that speed is a key ingredient of success since all economic actors suffer with the parallel use of two currencies. For example, during the cash changeover, both retailers and consumers have an interest in keeping the dual circulation period as short as possible.

I notice that Slovenia is planning in its Master plan to implement a one-week dual circulation period. Slovenia counts on the experience of having successfully faced previous changeovers (from the dinar to the vouchers in 1991 and from the vouchers to the current tolar in 1992). Moreover, it is the newly acceded Member State with the biggest number of people, (around 80%) who have already used euro banknotes and coins. This extremely short dual circulation period offers considerable advantages, although it will require anticipating any possible risk well in advance. In particular, the reflow of legacy cash will need to be carefully planned in order to avoid major disruptions.

As regards electronic payments, Slovenia is well developed. This will definitely facilitate and speed up the cash changeover. However, IT systems should be carefully adapted to permit a proper functioning from €-day.

(iii) Let me now move to the third and last element which I wanted to raise in my intervention, namely the mental or psychological changeover , which appears to be by far the most difficult issue to tackle.

It is obviously easier to change the content of people's purses than to influence their minds.

Mental changeover takes considerable time. For example, survey results relating to the euro area show that the majority of citizens still calculate in national currency for large-value purchases (for example, when they buy a house or a car). The mental switchover appears to be considerably faster for small-value items. The early introduction of dual displays helps considerably in this respect.

But if it is implemented before the conversion rate has been irrevocably fixed, as envisaged in Slovenia, it should be made clear that it has only an indicative value: the final conversion rate can never be taken for certain as long as it has not been set. In addition, while dual displays assist consumers in their mental changeover to the euro, keeping them in place for too long could have the perverse effect of prolonging the reference to the national currency beyond what is necessary.

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Ladies and gentlemen,

Let me now conclude. We have seen that the first-wave experience taught us some important lessons.

The first is that candidates for euro-area entry should prepare themselves in good time if they want to ensure a smooth changeover to the euro.

The second is that the changeover needs to be short and efficient and I am confident that this will definitely be the case in Slovenia.

The third is that the mental (or psychological) changeover constitutes the most delicate and unpredictable element of the process. But, here again, a lot can be done to avoid unnecessary problems.

I know that Slovenia is very much committed towards adopting the euro and I would like to reiterate that the European Commission will be your partner in this process and intends to contribute as much as it can to a successful changeover in all future euro-area entrants.

Thank you very much for your attention.