From Communism to the eurozone: Slovenia emerges

On Jan. 1, it becomes the first of its peers to adopt the euro.

Amid the usual holiday lights, a neon green beam from a government office window cuts through the night and dances on a building across this capital city's shimmering river.

First, there's the unmistakable image of the euro. Then Slovenia's currency, the tolar, flashes above it. The chorus of images ends in a countdown – Thursday night, it will show a mere 17 days remaining until this tiny Balkan country turns in its tolars in exchange for the European currency. On Jan. 1, Slovenia will become the first of the European Union's 10 newest members to adopt the euro – not an insignificant feat at a time when its peers are struggling to meet the necessary economic criteria. But as the government – armed with light shows and leaflets – revs up its information campaign to make the transition a smooth one, many Slovenes are focusing more on what it will mean for their pocketbooks than their country's prestige.

Even now, they say, it is driving up prices.

"It's starting already now," says Tadej Kopac, working a food stall beside his grandmother at a busy outdoor market. He pauses to grab an armful of spinach for a customer, and then adds that in just one month the cost of a movie ticket has risen the equivalent of 1 euro.

Adopting the single currency is a requirement for most EU members – only Britain and Denmark, which secured exemptions years ago, can opt out, and they have. But in rapid-fire succession, one new member after another has pushed back its adoption date. In October, the Lithuanian government said the country wouldn't be ready for the euro until 2010, instead of next year, as originally planned. Estonia last month moved its date from 2008 to 2010. Czechs and Hungarians, hopefuls for 2010, now say two to four years later is more realistic. Poland has yet to set a date, and is threatening to hold a referendum on whether to even join.

Many blame soaring inflation and deficits for the delays. Since joining the EU, the economies of these countries have exploded, and governments have struggled to keep up with that growth, says Simon Tilford, an economist at the Center for European Reform in London.

Most have budget shortfalls greater than 3 percent of their gross domestic products, the ceiling Brussels has set for eurozone members. Hungary's is the worst, at 10 percent.

"I think the general feeling, certainly in the Czech Republic, Poland, and Hungary, is that they're not going to rush this," Mr. Tilford says. "They'll be watching, but I don't think Slovenia holds many lessons for them."

What has Slovenia managed to do right?

"Everything can be put under this statement: We were more conservative," says Andrej Kumar, a professor of economics at the University of Ljubljana. "We never wanted big jumps, big changes."

While other countries aggressively courted foreign investment after joining the union in 2004 – which drove up debt – Slovenia was highly selective about which companies to let in, says Mr. Kumar. The government maintained a presence in key market sectors – telecommunications, energy, transportation – which kept prices steady, while other governments chose largely to privatize them.

Throughout the EU10, talk of the euro is almost always wrapped in concern that staples like food and drink will become more expensive, though economists like Tilford say there is no data supporting that. Three out of four Czechs believe the euro will cause prices to go up when the country eventually adopts it, according to a recent poll.

The Slovenian government promises to crack down on price gouging: An entire inspection unit will monitor shops and businesses in the coming months to verify fair prices. It is also urging banks, which will convert all accounts to euros on Jan. 1, to extend operating hours.

Prices in Slovenia have been listed in both tolars and euros for almost two years now, but the government is still stressing the official exchange rate – roughly 250 tolars to the euro – every chance it gets. Slovenes are used to a high nominal currency; the pizza that costs 2,000 tolars today will soon run about 8 euros.

It's also a new currency, born at Slovenia's independence from then-Yugoslavia 15 years ago. Slovenes like Maya Mihicinac have embraced it as a symbol of that milestone. "We love the tolar," she says. "If I go to another country, it's euro. The tolar is our money."