Academic journal article Romanian Journal of European Affairs

Analysis of the Czech and Slovak Different Strategic Choices towards the Eurozone

Academic journal article Romanian Journal of European Affairs

Analysis of the Czech and Slovak Different Strategic Choices towards the Eurozone

Article excerpt

1. Introduction

On January 1, 2009 the Slovak Republic, a small country in Central Europe introduced the euro and officially became the 16th member state of the Eurozone. It was not only the first country from the former Warsaw Treaty Organization to join the Eurozone, but also the second country among the new EU member states after Slovenia. However, the Czech Republic, which had a long-term coexistence in a common country with Slovakia and even joined the EU together, in 2004, made a completely different strategic choice: indefinite postponement of euro adoption. Our paper is organized around the answers to the following six questions: Why did the Czech Republic and Slovakia make different strategic choices on the issue of joining the Eurozone? How could Slovakia, a country with unfavourable initial conditions of transformation, quickly achieve the full compliance of the Maastricht convergence criteria? How is Slovakia's experience in the Eurozone? Compared with the Czech Republic, which has not introduced the euro, is the Slovak economic situation better or not? Which economic consequences did the debt crisis of the Eurozone bring to Slovakia and how does it affect the decision of the other Central European countries, including the Czech Republic, about euro adoption?

The argumentation begins with an historical evidence of the two countries' economic development and international status before joining the European Union. It continues with the analysis of the determinants which led to Slovakia's Eurozone accession, while the Czech Republic postponed the entry into the Eurozone. Our paper goes on with the introduction of Slovakia's experience in the Eurozone and a comparison between the Slovak and Czech economic developments since 2009. Finally, we present the main conclusions and discuss the effect of the Eurozone debt crisis on the attitudes of the Central and Eastern European countries towards the euro adoption.

2. The economic development and international status of the Czech Republic and Slovakia before joining the European Union

Before the breakup of the Czech and Slovak Federal Republic, the Czechs and Slovaks had already begun the process of transition to a market economy and the "return to Europe". The separation of the two entities accelerated the pace of change. Nevertheless, "the Velvet Divorce" and the subsequent economic changes took place "in the shadow of the war in the former Yugoslavia and the crumbling of the Soviet Empire" and it "received comparatively little attention" among scholars (Hilde, 1999).

Economic transformation in the Slovak Republic was even more difficult and caused a greater impact on Slovak peopleeuros life, leading to widening economic disparities between the two neighbouring countries. The disintegration of the Czech and Slovak Federal Republic on December 31, 1992 interrupted the economic recovery which had begun in the second half of that year. While it adversely affected the economic development of both the Czech Republic and Slovakia, the dissolution of the federal republic brought greater negative consequences to the Slovak Republic (Svejnar, 1997).

After the dissolution of the federal republic, the Czech Republic and Slovakia embarked on different paths of economic transformation. The Czech Republic continued with the radical transformation strategy which had been adopted in the federal period, while the Slovak Republic was gradually deviated from the transition path of the federal republic, with a new way of privatization, and slowdown of the transition speed. In the early times following independence, due to more favourable initial conditions for transition, such as a relatively balanced domestic market, skilled and educated labour force, less debt, low inflation and adequate domestic savings, the economic situation was better in the Czech Republic, and its pace of integration into the European economy was faster than Slovakia's.

The Czech Republic needed only a few years to achieve macroeconomic stabilization, privatization of state-owned companies and price and trade liberalization. …

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