Slovenia is on track to ditch its national currency the tolar to become the 13th European Union member to use the euro, after officials in Brussels said the tiny Alpine country was on track to join the euro zone next year.
"Slovenia has achieved a high degree of sustainable economic convergence with the other member states and it fulfils the necessary conditions to adopt the euro," the European Commission said in a statement on Tuesday afternoon. "The Commission is proposing to the Council (of EU ministers) that Slovenia adopts the euro on Jan. 1, 2007."
The news was welcomed in the Slovenian capital Ljubljana, where the country's leadership has long worked to distinguish the formerly northernmost part of the Yugoslavia from the often fractious Balkans to the south. Joining the euro will tie Slovenia even closer to its northern neighbor Austria, which already uses the currency along with Portugal, Spain, Belgium, the Netherlands, Germany, France, Luxembourg, Italy, Ireland, Finland and Greece.
"Slovenia will get a chance to become even stronger and make further positive steps," Slovene Prime Minister Janez Jansa said according to the Associated Press.
Slovenia will become the first of the 10 newest EU members -- mostly from Eastern Europe -- to join the currency bloc. The other aspirant, Lithuania, had its hopes dashed by EU Economic and Monetary Affairs Commissioner Joaquin Almunia. "Lithuania meets all the convergence criteria except the one on inflation," he said.
The EU officials have set strict criteria for inflation and public debt that are meant to keep the economic basis for the euro sound. Countries that do not stick to euro-zone budgetary deficit rules can face sanctions from the Commission, but a number of countries including Germany have had difficulty coming to terms with the one-side-fits-all monetary policy that euro membership requires. Both Germany and France -- two of Europe's largest economies -- have repeatedly run afoul of a euro-zone rule requiring countries to keep public debt below 3 percent of gross domestic product. Italy and Greece have likewise violated the rule.
Some critics complain that interest rates set for the euro zone by the European Central Bank are not able to stem inflation in rapidly expanding economies such as Ireland and Spain and at the same time help spark growth in slower ones like Germany and Italy. Accordingly, many economists are urging caution in bringing most of the new EU members into the currency union since most of the eastern economies are growing much faster with higher rates of inflation than most of Western Europe is.
Still, that hasn't deterred many of the smaller new members from pursuing early euro-zone membership. Malta, Cyprus, Estonia and Latvia have all set a 2008 target to join the currency, while bigger Eastern European economies are likely to have to wait longer. Slovakia wants to join in 2009, followed by the Czech Republic and Hungary, but Poland has not yet set a date.