The European Union's executive Monday urged Slovakia to step up its
anti-inflation fight as the former East Bloc nation awaits word on its bid to
switch to the euro on January 1.
The warning by EU Monetary and Economic Affairs Commissioner Joaquin Almunia came ahead of an expected May 7 ruling by European authorities on whether Slovakia is ready to become the eurozone's 16th country.
A new European Commission economic outlook Monday said Slovakia's average inflation will spike to 3.8 per cent this year from 1.9 per cent in 2007, then retreat to 3.2 per cent in 2009.
Some analysts said the forecast was narrowly within the target range for showing the European Commission and the European Central Bank (ECB) that Slovakia's inflation will stay low in future - the key remaining issue.
Almunia urged Slovakia's government to tighten government spending, which he said was a home-grown reason for rising prices - in addition to the global price shock, a reference to food and energy prices.
"We have said several times to Slovak authorities that ... the fiscal stance of the Slovakian policies is not as ambitious as desirable," he told reporters.
"Fiscal consolidation should be more ambitious so as to help the authorities fight inflation more successfully," Almunia said.
Slovakia would be the first euro member from the former Soviet bloc and has met key euro benchmarks, including those on current inflation and the public deficit. But questions remain about whether inflation will rise once the country adopts the euro.
The EU report on Monday showed the trend for Slovakia running well above current eurozone countries, where average inflation was pegged at 3.2 per cent in 2008.
But analysts said the forecast of easing inflation after this year's expected spike could work in Slovakia's favour. Some went even further.
"This is a clear message that the European Commission is in a positive mood toward acceptance," said Juraj Valachy, an analyst for RZB Group in Bratislava, the Slovak capital.
Almunia also said the Commission on May 7 would close a probe for Slovakia's past overshooting of the limit on budget deficits for countries that want to use the euro - 3 per cent of gross domestic product (GDP).
Ending the EU deficit investigation is a condition for Slovakia to join the euro.
Slovak leaders insist that adopting the euro will not lead to an inflation burst - as happened in Slovenia after that country joined the eurozone last year.