Malta will formally adopt the euro as legal tender as of midnight, 1 January, 2008 – slightly more than six months from now. Slovenia was the first of the EU10 to adopt the euro and that was six months ago, 1 January, 2007. MICHAEL CARABOTT recently travelled to the capital Ljubljana to learn from the Slovenian experience in switching to the common European currency. He also spoke to the National Euro Changeover Committee to bounce ideas off them following his return.
Being invited over to Slovenia for a series of lectures and Q&A sessions on the country’s road to euro adoption allows a person to have a better insight as to the ins and outs of what needs to be done once Malta adopts the currency itself.
Slovenia adopted the euro just under six months ago and the first thing that strikes you is that they seem to have always had the euro and that the general public seems, on the whole, satisfied with adoption.
However, there are issues which we, as a nation of consumers will need to address to try and minimize the initial problems which accompany such a changeover. Ask any person on the street in Slovenia and they will tell you that they are satisfied that the country is in the Eurozone because they have replaced a large denomination ‘weak’ currency with a smaller denomination strong one.
However, these people will also tell you that they do believe that prices went up but later stabilized. If one analyses and crunches the numbers, it immediately becomes apparent that prices for products have actually gone down, while prices for services have increased slightly.
Another problem which will need to be addressed is that of perceived inflation. In line with the way perceived inflation soared upwards when the first bloc adopted the euro, the same happened in Slovenia. It did drop after a couple of months, but it surely remains to be the main issue that needs to be tackled. The gap between actual and perceived inflation is something like 2 percentage points, which is not to be sneezed at.
However, the comparison is a very interesting one. The Slovenians used to have the old Yugoslav dinar and then changed to vouchers and eventually the tolar. It was, however, weak to the point that coins were absolutely worthless. This made it easy for the Slovenians to round their prices in Euros. Malta, however, will face a completely opposite scenario where our cash will, in our initial mindset ‘not be worth as much as Lira and cents’. One might question why – look at it this way, a Maltese person is used to paying 26 Malta cents for a carton of milk. Yet in euro, that works out to 60.056 euro cent (which of course becomes 61 euro cent on round up).
What has been learned then from the Slovenian experience. Information is key. The Slovenians believe that one of the great reasons for the success of switching over to the euro was the fact that there was a lot of information present and it was readily available.
Another issue which must be tackled is that of blatant price increases. This also took place in Slovenia, but a good customer watchdog service is essential. The Slovene Consumer Association decided that it would name and shame abusers and it did, which led to a lot of abuse being nipped in the bud. Being of a more Mediterranean nature, we can expect that to happen in Malta. But at the end of the day, the power is in the consumers’ hands. They need to be vigilant and willing to report abuse to the relevant bodies. Euro adoption is not a choice. It’s a must and perhaps this reading material will allow people a better understanding of the matter at hand.
Darko Bohnec – Vice Governor of the Bank of Slovenia
Mr Bohnec said that fulfilling the Maastricht criteria was of paramount importance as it gave Slovenia a concrete base from which to work. “However, that does not mean that you just fulfill the terms and that’s it. You must keep working hard to stay within those limits and that is what allows euro conversion to be successful,” he said.
Speaking from the point of view of the Central Bank, Mr Bohnec said that the country needed two years to prepare for conversion to the single currency.
Mr Bohnec said Slovenia enacted a number of laws to ensure a smooth changeover. The first of these was to implement mandatory informative dual pricing which began in March 2006 and will end in July this year. On the other hand, he said that the country was lucky in the sense that the central parity rate and the irrevocable exchange rate remained the same. The aim of these laws, which were only implemented in view of transactions between companies and consumers, was to have an orderly changeover which allowed people the time to adjust. Other significant aims in the strategy were to allow for price comparability and to avoid inflation.
The actual changeover
Within the first half hour after midnight on 1 January, 2007, almost half of the ATMs were available and able to dispense euros. By the morning more than two thirds were operational. Mr Bohnec also said that there was a huge demand for euro starter kits. Interestingly, Slovenia has decided not to dispense the EUR5 note from ATMs as they had some problems with it. This was mainly due to the note’s durability and the tendency of some machines to dispense, for example, two notes instead of one.
Mr Bohnec said that in adopting the euro, Slovenia lost its autonomy of monetary policy, but not its autonomy in general.
Dusan Hocevar, Director, Bank Association of Slovenia
Mr Hocevar said the introduction of the euro in Slovenia brought about better economic prospects, both in the medium and the long term. He also said that it has already resulted in more competition in the local market. Mr Hocevar also explained that funds were gaining in the market since the new currency was introduced and that savings habits had not really changed as a result. However, he did say that people in Slovenia were becoming more cautious with their long term planning.
“What was curious was the use of coins. With the old tolar, which was a high denomination currency, coins were pretty much worthless and people had to realise that a one euro coin is not exactly an amount to be sniffed at,” he said.
He also said that the bank had to deal with the problem of ‘hidden cash’. He said the banks planned for this and while he did not have a figure, he conceded that a ‘considerable amount’ was pushed back into the economy following the changeover. This, however, had no bearing on inflation.
Speaking about the problems that banks experienced, he said that these included the fact that there were huge queues for starter packs for the first few days. Another problem was that small and medium enterprises refused to go for sub-front loading at first and waited instead till January to implement it. Another issue which was a problem was that some restaurants and shops were not accepting large euro denominations because of lack of coinage.
Government senior communication adviser Nada Serajnik Sraka
Mrs Sraka focused on issues which followed the conversion and when asked what would be done differently, she said that the government would have provided each and every person with a calculator, rather than every household.
Asked about the areas affected by price increases, she said that the main one seemed to be the services sector, although the impact was not that high. However, she said, a realistic picture could not be expected before the end of the year. She also said that the Slovenian authorities found that while talks and presentations were all positive, publications, television and radio spots and print were the main factor that contributed to a successful information campaign. “People want a publication they can refer back to if they want to. They need something solid in their hands,” she said.
One issue that Malta and Slovenia had in common was the spelling of the euro. Both countries’ grammar rules do not allow for a ‘U’ to be placed after an ‘E’. As a result, the Slovenian spelling is Evro, similar to our Ewro. However, a deal was hammered out whereby in all official correspondence, the Euro is referred to as ‘euro’ while nationally the Evro spelling can be used – much similar to the Malta situation.
Inflation remains stable
According to the European Commission, the Slovenian experience illustrated once more that perception, expectation and reality with respect to price evolutions do not necessarily go together, confirming that a change of currency affects people’s scales of values and requires a mental adjustment process that is only gradual.
Overall prices actually declined in January in Slovenia, compared to December 2006. The fall in annual inflation from three per cent in December 2006 to 2.8 per cent in January was accentuated by the then decreasing energy prices. Overall, in the first four months of this year, prices went up by 1.3 per cent against 1.5 per cent for the same period of 2006 (preliminary data).
Based on preliminary information gathered by the Slovenian Statistics Office and Eurostat, the total impact of changeover on inflation was of 0.3 per cent – in line with the first-wave changeover in 2002. After an initial period in which a gap emerged between real and perceived inflation, it has now started to diminish, pointing towards a more rapid normalisation of price perceptions than has normally been the case.
All in all, the vast majority of Slovenians (95 per cent) believed that the changeover was smooth and efficient.
Mihela Zupancic – Head of the EC Representation in Slovenia
Ms Zupancic said the major reason behind Slovenia’s successful conversion to the euro was down to a solid communication campaign embarked on by the Slovenian government, Slovenian Central Bank, European Central Bank and the EC itself.
Another factor which helped, she said, was that Slovenia bordered two eurozone states and people were used to going shopping there and dealing in euros. “95 per cent of the population had already used euros and many people also had bank accounts in euros,” she said.
She pointed out that the Big Bang plan worked and that just a few days after conversion, some 80 per cent of transactions were carried out in euros rather than tolars.
She said that while analysis was still going on, it was clear that this, the first Big Bang attempt, was a success. “There was two weeks of dual circulation, but people took to the euro straight away,” she said.
She said that all ATM machines and banks were stocked with euros on the first day after adoption and that large amounts of cash were available.
Ms Zupancic also touched on the issue of inflation and said that the rate did not suffer. “In fact, it dropped from three per cent to 2.8 in January 2007 and it dropped again to 2.3 per cent. However, this was mostly due to cuts in energy prices,” she said.
She did however say that price increases were registered in coffee shops, transportation, repair services, bars and restaurants. This, she said, led to perceived inflation which was markedly up in January and February, but settled towards March and began to diminish.
Ms Zupancic said that this was a break from trends registered in the original countries which adopted the euro where perceived inflation was up for about a year.
“The more information there is available, the better we can combat perceived inflation. Added to that, we had a very active Consumer Association which kept a very close eye on prices and that helped no end,” she said.
University professor Mojmir Mrak
Professor Mrak had some very interesting points to debate, mostly related to the convergence criteria imposed on the new EU12 who are to join the single currency.
Prof. Mrak said he felt that the original EU10 were crude and conservative in their interpretation of the Maastricht Criteria which regulates euro adoption, for countries in the ERMII.
He said that the original batch of countries which wanted to adopt the euro did so straight away, even though some of them had public debt which was way beyond the 60 per cent of Gross Domestic Product established by the 1992 Maastrich criteria.
He also said that the permitted levels of inflation deemed acceptable to adopt the euro as currency were not realistic today. He said that some of the previous round of countries that joined the eurozone had a public debt which ran into figures which were in excess of 100 per cent of GDP. “It all points towards a lack of political will to get the new countries in,” he said.
Prof. Mrak said that more flexibility was needed and that states who wanted to adopt the euro should be assessed individually. He said that the new EU12 had embarked on a long convoy process to ensure EU membership, but the road to join the euro was a long economic process that involved ups and downs for all.
He reiterated that it was not fair that the original batch of countries implemented the euro without any problems and that then new countries, merely four or five years later were facing difficulties on the fiscal side. However, he did say that the Big Bang scenario worked for Slovenia and that by and large, it was a successful changeover.
National Euro Changeover Committee
What is the amount of euros that Malta will need and what are their denominations ?
The Central Bank of Malta, on the basis of estimated circulation levels on 31 January, 2007, anticipates it will be required to replace a note circulation of close to Lm430 million (euro 1,002 million) and a coin circulation of approximately Lm20.6 million (euro 47.8 million) on 1 January, 2008. The figures could, however, vary from these estimates if there are variations in the patterns of withdrawals and deposits of currency at the bank up to the time of the changeover. It is estimated that the bank will order some 80 million euro notes and 200 million euro coins to meet changeover needs.
What are the dates in which Malta will have dual circulation and dual pricing
Dual circulation – January 2008
Dual display – voluntary : 1st January 2007 to 30th June 2007
Mandatory – 1st July 2007 – 30th June 2008
What will the euro starter packs contain ?
Euro Coin Starter Kits
The Central Bank of Malta has ordered 330,000 starter kits for the general public with a value of €11.65 each, equivalent to Lm5.00, and 33,000 starter kits for retailers with a value of €131, equivalent to Lm56.24. The kits will contain the following number of coins:
Starter kits for the general public – €11.65 in loose coin
€2 x 2 coins, €1 x 3 coins, €0.50 x 5 coins, €0.20 x 6 coins, €0.10 x 6 coins, €0.05 x 5 coins, € 0.02 x 3 coins, € 0.01 x 4 coins.
Starter kits for retailers – €131 in coin rolls
€2 – 1 roll x 25 coins, €1 – 1 roll x 25 coins, €0.50 – 1 roll x 40 coins, €0.20 – 2 rolls x 40 coins,
€0.10 – 3 rolls x 40 coins, €0.05 – 2 rolls x 50 coins, €0.02 – 2 rolls x 50 coins, €0.01 – 2 rolls x 50 coins.
Starter kits will be available from credit institutions as from 10 December 2007 so as to enable the public to have small change in hand in good time for the changeover.
What is inflation and what is deflation ?
Inflation is an increase in the general price level. In simple terms, inflation can arise when there is too much money chasing too few goods. Prices may increase for different reasons. For example, suppose there is only one CD left in the shop and you and all your friends want to buy it. The shopkeeper will probably increase the price of the CD because he knows that demand is high and he can get more money for it.
Similarly, a product may become more expensive if it costs more to produce it. If energy prices go up, for example, then the costs of producing your CD will also go up and the manufacturer will increase its wholesale price in order to avoid making a loss. For the same reason, the shopkeeper will attempt to pass this price increase on to you.
In both examples, your €10 has lost its value, or its “purchasing power”, because it is no longer enough to buy two CD singles. However, we can only speak of inflation if this were to happen to the total price of the whole range of products included in the “shopping basket“, and not just to one item.
Deflation can be defined as the opposite of inflation, or as a situation where the general price level falls over time. It may result from low demand for goods and services, which forces companies to sell their products at cheaper prices.
Prices are said to be stable if, on average, they neither increase (as in periods of inflation) nor decrease (as in periods of deflation) over time. If, for example, €50 can buy roughly the same “shopping basket” as it could one or two years previously, then we can say that the general price level is stable. With inflation (or deflation) the prices of all goods change significantly and frequently and in an unpredictable manner.
As a result, it is difficult to judge whether the change in the price of a product makes it cheaper or more expensive in relation to other products. Consequently, companies and consumers may misinterpret price changes and make mistakes in their purchasing decisions. This then leads to an unproductive use of resources.
7) a breakdown of benefits of joining the Euro AND any possible drawbacks
What is the difference in the way Malta will adopt the euro, compared to Slovenia ?
Together with high-level economic forecasts and preparations Slovenia also embarked on a strategic communications campaign which was unfolded gradually as €-day approached.
During the first half of 2006 the campaign ensured that the information provided was educational. The aim was to heighten awareness and create general knowledge on the euro.
The provision of information increased towards the middle of 2006, when a positive outcome from the convergence report emerged. As the much awaited €-day approached, focus turned on general information to the public about the function of the European Union and compliance with convergence criteria, coupled with concrete activities associated with the adoption of the euro, information to the public on such activities and the process of changeover. The final stages focused on making the public acquainted with the progress of preparations in banks, design of the common face of coins and banknotes, and giving practical advice on the change of national currency units to the euro.
Various effective and consumer-friendly means of communication were adopted by the Slovenian government to increase familiarity with and knowledge about the euro. In Malta a number of publications have been distributed to households at the beginning of the campaign while others are due to be distributed as the information campaign draws to an end and euro day approaches. Information posters and promotional material will also be distributed. A website and euro help line have been launched; presentations in schools, shopping centres, hospitals and homes for the elderly are being delivered. Advertising took up prime time viewing in the final stages and a specialised euro radio programme was aired.
Like many countries which adopted the euro successfully, in March 2006 Slovenia opted for a period where dual display of prices was mandatory. The informative dual price tags, which are also designed to help prevent unjustified price hikes and consequently inflation, are mandatory for 16 months, until the end of June 2007.
The success story of Slovenia should spur our country to examine current projects and the economic state of affairs and to keep check of the progress being made to ensure that Malta achieves a successful changeover, both economically and socially through the collective participation of all those involved.
What is the FAIR scheme ?
FAIR, which stands for Fair-pricing Agreements in Retailing, is an initiative that has been set up by the National Euro Changeover Committee and that goes hand in hand with the dual display of prices. FAIR oversees the display of prices of goods and services, in both the Maltese lira and the euro, during the voluntary period. This initiative seeks to guarantee fairness (as its name suggests) and transparency, thereby promoting consumer confidence, early next year when the voluntary period for the dual display of prices is scheduled to start.
Businesses that intend to display both currencies as of early next year on a voluntary basis would need to subscribe to the FAIR initiative. Through their subscription organisations will be committing themselves to fair pricing strategies during the euro changeover process. This essentially means that such businesses undertake not to increase prices for the sole reason that a currency changeover is taking place.
The FAIR logo, which is part and parcel of the FAIR initiative, will be awarded to all subscribers as an indication that the outlet is adhering to best practices established for the euro changeover period.
NECC will in turn provide nationwide publicity to all FAIR businesses encouraging consumers to look out for the FAIR logo when shopping. As part of the FAIR Initiative businesses will be provided with free staff training, the option of having a link directly to the euro website, and the opportunity of using the euro campaign mark in their adverts and promotional material. Each participating organisation will be supplied with a business starter kit consisting of a training DVD, a dual display calculator, a dual display price gun, conversion charts and information material.
FAIR seeks to familiarise the consumer to the new currency, to ensure that all consumers are confident in using the euro and also to guarantee transparency in the prices of goods and services. Through FAIR a sense of trust will be established between retailers and consumers ultimately indicating that both will benefit from the FAIR initiative.
Slovenia facts and figures
Population: 1,996,200
Territory: 20,256 km2
Previous currency to Euro: Tolar
Major language: Slovene
Major religion: Christianity
Life expectancy: 73 years (men), 80 years (women) (UN)
Timeline
1989 - Slovene parliament confirms the right of the country to secede from the Yugoslav federation
1991 - Slovenia, along with Croatia, declares its independence. The Yugoslav federal army intervenes. Slovene forces defend the country. About 100 people killed. The EU brokers a ceasefire
1996 - Slovenia signs an association agreement with the EU
2003 March - Referendum vote backs both EU and Nato membership
2004 1 May - Slovenia is one of 10 new states to join the EU
2005 February - Parliament ratifies EU constitution
2007 January - Slovenia becomes the first former communist state to adopt the single European currency, the euro. In May 2006 the EU gave Slovenia the green light to join the eurozone
When Slovenia joined the EU in 2004, it committed itself to adopting the euro after having participated in ERM II for two years. The country joined the mechanism in 2004 on the understanding that if it complied with all five Maastricht convergeance criteria by mid-2006, it would be allowed to introduce the euro on 1 January, 2007.
National public opinion surveys (Politbarometer, May 2005) showed that as many as 59 per cent of respondents trusted the euro while the previous currency – the tolar – enjoyed the trust of 58 per cent. It is worth noting that Slovenians are not new to currency changes, they had the Yugoslav dinar, which was followed by vouchers following independence from Yugoslavia, the tolar and now finally, the euro.
According to Eurobarometer results, Slovenia was among the new EU member states with the highest level of familiarity with the euro – over 60 per cent – and with the most frequent use of the currency – 70 per cent.
The same poll showed that Slovenes did not expect many difficulties with changeover on a personal level (78 per cent), nor did they have excessive fear of abuse (67 per cent), losing national identity (57 per cent) and losing control over economic policy (56 per cent). Women, elderly, less educated people and the rural population most commonly expressed concern or feared abuse.
The information campaign
Preparatory stage (June-December 2005)
During this period, the campaign focused on setting up an inter-institutional communication network, providing the public with information on dual display of prices, presenting corporate visual identity, carrying out public procurement procedures, and collecting the necessary information to prepare the www.euro.si website and information leaflets.
Introductory stage (January 2006-September 2006)
This stage focused on providing information and organising communication and educational activities. The joint publication The Euro is Coming was sent to all households while numerous presentations were also held at schools, shopping malls and fairs.
Final stage (September 2006-December 2006)
During this stage, the campaign reached its peak, focusing on activities aimed at drawing people’s attention to the forthcoming changeover and adoption of the euro. Special attention was given to reinforcing the familiarity with the euro banknotes and coins and their security features. Advertising in the local media also took place.
Evaluation
On 1 January, 2007, the euro became the official currency of the Republic of Slovenia. Slovenia became the firt new member state of the EU to adopt the euro – making it the 13th member of the Eurozone.
According to the Report of the European Commission, the changeover was swift and smooth due to a competent preparatory task force which was supported by a thorough communication campaign.
Publications: 1.5 million copies of various publications were distributed throughout the country. They were also prepared in different languages to target different ethnic groups. 1,352,000 copies of publications and posters issued by the European Central Bank in Slovenia were also used in the campaign.
Presentations and Promotional Events: Over 800 presentations were carried out at 169 schools and presentations were made at 42 supermarkets. 15 presentations were made at various fairs and 12 additional presentations were made at homes for the elderly, with 15 supplementary promotional events.
Europhone and www.euro.si: Over 3,670 questions were received on the Europhone line and through the website, mostly in the last months leading to the changeover.
Advertising: Various adverts were published in all sections of the local media, including television, print media, postcards, cinema, internet and digital displays.
Public opinion:
EURO BAROMETER OCT O4 NOV 05 JUNE 06 OCT 06 JAN 07 APR 07
Familiarity with Euro 91% 91%
Support of introduction 57% / 64% 68% / /
Percentage of informed 63 60 / 83 92 /
Satisfaction 64 58 66% 72 / 83
Positive consequences 56 46 58 61 / /
Fears 57 39 70 66 ~50 /
According to a Slovenian Survey (Ninamedia January 2007), 88.6 per cent of respondents had no trouble adjusting to the euro. The majority of those who had difficulties encountered problems in calculating the exchange rate.
Possible fears and doubts were related to potential price hikes and inflation. The only real concern for those polled was potential price hikes (42.5%), with 83.4% saying they experienced a price increase following the switch. 56.75 blamed retailers while 22.3% blamed the government.
Slovenian Consumer Association
Damjana Pondelek from the Slovenian Consumer Association said it was essential that people in Slovenia empowered themselves to protect against rising prices.
She said that price increases were noted in restaurants and bars, coffee shops, vending machines, parking, cigarettes, newspapers and banking services.
She said that in the months leading up to adoption of the euro, there did not seem to be any problems, however, the rise in prices became more pronounced in November 2006.
She said that to combat this, the association spoke to firms that put their prices up in the hope that this would return matters to normal. In some cases it worked, yet in others it did not. In December, the association published a black list whereby companies that pushed their prices up by more than six per cent were named and shamed. She said that this quickly returned prices to normal. Giving figures of polls carried out by the association, Mrs Pondelek said that 83.4 per cent of Slovenians believed prices had gone up, but not substantially.