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EU finance ministers formerly gave Slovakia the green light July 8 to join the eurozone at an exchange rate of 30.1260 Slovak korunas to 1 euro. In addition, Fitch upgraded Slovakia’s default rating as a long-term foreign-currency issuer — essentially the country’s credit score — from A to A+.
Slovakia has come a long way. The country spent most of the 1990s flirting with nationalism and almost became roadkill on the superhighway to EU membership. Instead, a series of policy U-turns and unexpectedly savvy governments means that Slovakia will soon be the first former Iron Curtain country to join the currency union. Slovakia will adopt the euro Jan. 1, 2009, becoming the eurozone’s 16th member.
Getting into the eurozone gives a country “German-style” (very low) interest rates, virtually ensuring faster growth, albeit at the cost of higher inflation. In 2007, Slovakia boasted 10.4 percent gross domestic product growth and only 1.9 percent inflation.
A country’s credit rating determines how cheap it is for the country to borrow money. When a state borrows money, it issues bonds (T-bills in the United States). The state has to promise a premium to those interested in buying the bonds — a payout called the yield. The higher the credit rating (AAA is the highest), the less the perceived risk of default and the less a state has to pay.
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