2008-05-07 12:43:08 -

BRUSSELS, Belgium (AP) - Slovakia on Wednesday cleared a crucial hurdle toward adopting the euro next year when European Commission and the European Central Bank said the country had met a set of strict economic standards.
Slovakia «is ready to adopt the euro on Jan. 1, 2009,» said the EU's top economy official, Joaquin Almunia.
The European

Commission said it now will ask EU finance ministers and EU leaders to approve Slovakia's membership bid in June and July. This would see the country become the 16th member of the euro currency zone.
The European Central Bank, however, warned Slovakia of «considerable concerns» that inflation may rise more than the euro average in the future due to tight labor market restrictions and surging energy prices.
It called on the country to push on with reforms to open up its economy and boost competition for products, particularly for energy.
The EU's executive Commission said average yearly inflation in Slovakia in March was 2.2 percent _ well below an EU limit of 3.2 percent for joining the zone.
It also said that the government «will need to remain vigilant to keep inflation at a low level,» warning that this meant curbing wage increases, limiting public spending and liberalizing its economy.
Slovakia also passed tests for its yearly budget deficit _ the difference between what a government spends and receives every year _ which stood at 2.2 percent of gross domestic product in 2007.
EU finance ministers must first formally clear Slovakia of breaking EU budget rules in 2006 because it ran a deficit above an EU maximum ceiling of 3 percent. Overall government debt was 29.4 percent of GDP, well under a 60 percent limit.
For Slovakia, it is a point of pride to join the 15-nation euro-zone after a hard road away from communism during the 1990s that saw it isolate itself for a time and fall behind its neighbors, particularly the Czech Republic that it split away from in 1993.
«We were always considered the ugly duckling of Europe,» said Martin Chren, director of the Bratislava-based think tank, the F. A. Hayek Foundation.

The «smaller, poorer brother» of the Czech Republic is now the «shining star» of central Europe, he says, thanks to six years of market-oriented reforms such as a flat tax rate and labor market policies that have boosted growth and attracted foreign investment such as French carmaker PSA Peugeot Citroen.
«The fact that Slovakia will be the first one to adopt the euro, perhaps for the Slovaks equals the situation when Slovak ice hockey players beat the Czechs,» he said.
Higher prices may be the cost of euro membership in any case as the country catches up with the euro zone. Prices are currently two-thirds the euro average and low wages have made it an attractive location for major manufacturers.
This «catching up» with western Europe was previously borne by a currency that acted as a shock absorber in rising and falling against the euro. That adjustment will now be carried by higher inflation _ something Slovenia has also experienced since it joined the euro in 2007.
But paying a little more may be worth it to Slovaks on New Year's Day next year when they swap their koruna for euros _ now the world's second major currency behind the U.S. dollar.