Ivan Sramko
Governor, National Bank of Slovakia
At midnight on November 25 last year, Slovakia pulled a surprise, tying the local currency, the koruna, to the euro and joining the Exchange Rate Mechanism II (ERM II). In doing so, it became the seventh of the EU’s newest members to link itself to the common currency, bringing it a step closer to formally adopting the euro.
Scotching its original plan to enter ERM II in the first half of 2006, the surprise move was widely praised, and revealed a shrewd approach from National Bank of Slovakia governor Ivan Sramko to maintaining currency stability.
Despite third-quarter economic growth of 6.2%, the koruna had recently traded weaker, which analysts said was down more to developments in other east European countries than the fundamental value of the currency. Entry into ERM II requires the National Bank of Slovakia to maintain the koruna in a 15% band above and below the central euro rate for two years, and is a test of currency stability. And because ERM II provides implicit price guidance, it isolates the currency from developments in peer-group countries.
Early acceptance into ERM II speaks for itself, as it is an explicit endorsement of the authorities’ policy credibility and reform track record. It had to be agreed with other countries in the eurozone, the European Central Bank and the seven other members in the ERM II currently outside the eurozone.
That was not the only boost to policy credibility that judges noted. Mr Sramko’s introduction of inflation targeting is no less significant, and is an important mechanism to meet strict Maastricht criteria for euro adoption.
“Inflation targeting is extremely important for us because it allows us to more effectively influence inflation developments as well as general economic developments in the country. Recent trends indicate that our strategy is effective and, as it has been applied, inflation expectations have decreased. In spite of the considerable external price pressures because of rising commodity prices, inflation within Slovenia has been modest,” says Mr Sramko.
Analysts are now predicting that Slovakia could be the first new EU member to adopt the euro, as soon as 2008.
Managing a small open economy that has committed itself to getting into the euro straitjacket, Mr Sramko wins The Banker’s European Central Bank Governor of the Year award for his thoughtful approach to meeting the euro requirements. In addition, the central bank has significantly strengthened banking supervision, winning praise from the IMF.
