The successful introduction of the euro in Slovenia

In this Communication, the European Commission analyses the main aspects of introducing the euro in Slovenia from 1 January 2007. It looks at the introduction of euro banknotes and coins, the switchover of administrative and financial systems in both the public and private sectors, and the way in which prices actually changed (as well as the public's perception of this) following the changeover. The Commission outlines the main lessons which the successful introduction of the euro in Slovenia can teach countries adopting the euro in future.

ACT

Communication of 4 May 2007 from the Commission to the Council, the European Parliament, the European Economic and Social Committee, the Committee of the Regions and the European Central Bank - The introduction of the euro in Slovenia [COM(2007) 233 final - not published in the Official Journal].

SUMMARY

Following the Council Decision of 11 July 2006, Slovenia introduced the single currency on 1 January 2007. In this Communication, the Commission outlines the main lessons to be learnt by countries adopting the euro in future.

Ensuring a quick changeover: the "big bang" scenario

Slovenia's "Masterplan" for the euro changeover is based on the so-called "big-bang" scenario, whereby euro banknotes and coins are introduced on the same day as the euro is adopted (1 January 2007 in the case of Slovenia). By contrast, the countries which adopted the euro earlier (eleven countries in 1999, and Greece in 2001) did not introduce banknotes and coins until 1 January 2002. Between 1999 and 2001, the euro could only be used as bank money in these countries (for cheques or bank transfers, for example).

The European Commission favours the "big-bang" approach for new countries joining the euro zone. Given that euro cash has been available since 2002, this approach appears to be the most appealing one because of its simplicity in terms of communication and information.

Both the Slovenian tolar and the euro were in circulation at the same time in the period from 1 January to 14 January 2007. After this period of dual circulation, the euro became the sole legal tender. Those still in possession of tolar banknotes and coins can exchange them for euros at branches of the national central bank.

The backflow of tolar cash started in November and December 2006, and was remarkably fast, especially for tolar banknotes. The return of legacy currency had caused severe bottlenecks during the first-wave transition in 2002.

Supplying banks and retailers with euros

Before the euro changeover date (" Day"), banks and other financial institutions have to be supplied with sufficient quantities of euro banknotes and coins by the central bank, a process called frontloading. In turn, the banks try to ensure that businesses involved in cash-related operations, and retailers in particular, are supplied with euro cash before Day to allow them to give change exclusively in euro, thus avoiding the recycling of legacy currency. As they bring the new euro cash into circulation, banks and retailers at the same time need to cope with the rapid backflow of legacy cash.

The Bank of Slovenia received a total of 94.5 million banknotes with a face value of 2 175 million from the Eurosystem's logistical stocks. A total of 296.3 million euro coins with a face value of 104 million were supplied by the Mint of Finland. Slovenia does not have its own national mint and selected the Finnish Mint as its coin supplier following a public tender procedure.

The conversion of financial administrative systems

The some 2.3 million bank accounts held by private persons and by businesses, associations and other legal entities were successfully converted into euro.

With regard to the conversion of administrative and financial systems to the euro, the Commission confirms that the "big-bang" scenario is much more demanding than the " Madrid scenario " which was applied during the first changeover wave. At the time, public administrations and private businesses benefited from a three-year transitional period extending from 1999 to 2001 (one year in the case of Greece) to convert these systems to the euro. Slovenian administrative bodies and businesses were expected to operate exclusively in tolar up to 31 December 2006 and switch all their systems to the euro as of 1 January 2007. This challenge was met because the administrations and business were able to prepare themselves adequately and in good time. No particular problems were experienced or reported.

Monitoring prices

The dual display of prices started in March 2006 and will continue until mid-2007. The Slovenian Consumers' Association has been monitoring prices ("PriceWatch") and has asked consumers to report price rises so that these can be published and possible abuses limited.

In January 2007, the Statistics Office of the Republic of Slovenia (SORS) released its first analysis of the impact of the changeover on prices in December 2006. The impact of unusual price increases in restaurants, bars and coffee shops was estimated to be no more than 0.12 %. The impact on the other expenditure groups was also estimated at 0.12 percentage points. For January 2007, SORS highlighted some other unusual price increases for the same purchases, as well as for recreational and sports services.

Based on the information provided by SORS, Eurostat considers that the likely impact of the changeover on consumer prices during and after the changeover period could be in the order of 0.3 %. The fall in the all-items annual HICP inflation rate in January 2007 to 2.8 %, and the further fall in February 2007 shows that the changeover effects, although noticeable, do not seem to be of such a magnitude as to drive consumer price inflation as measured by the all-items HICP. These observations are very similar to those made during the previous changeover to the euro. Eurostat will update its conclusions concerning the impact of the changeover if necessary, as further information becomes available.

Informing citizens is crucial: perceived inflation and actual price changes

In Slovenia, perceived inflation rose in January and February 2007 despite the fact that prices overall actually decreased during these two months. These observations are very much in line with those made during the first changeover to the euro. In Slovenia's case, however, there was a slight decrease in perceived prices in March. This decrease may be due to intensified communications efforts by the Slovenian authorities.

If perceived inflation continues to decrease, the situation in Slovenia may be different to the one observed in the euro zone, where perceived inflation continued to climb steeply and consistently for almost a full year after euro banknotes and coins were introduced in 2002. Five years on, this disparity has still not been eliminated entirely.

The Slovenian changeover experience shows once again that perception, expectation and reality with respect to price changes do not necessary go together. It is clear that a change of currency affects people's value scales and triggers a gradual mental adjustment process. Public perception of prices remains a key concern for future changeovers.

See also