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Euro turns to problem for Eastern Europe

By Karel Janicek and George Jahn

Associated Press

Published: Thursday, Dec. 30 2010 8:25 p.m. MST

A sign reading Slovak currency is the euro is displayed in a money exchange shop window in Bratislava, Slovakia, Thursday, Dec. 2, 2010.

Petr David Josek, Associated Press

BRATISLAVA, Slovakia — Bells pealed and fireworks shot across midnight skies in Bratislava two years ago, as Slovaks celebrated not only the New Year but also their country's long-sought entry to the club of nations using the continent's common currency, the euro.

Fast forward to the dying days of 2010 — after the eurozone's debt crisis forced the bailouts of Greece and Ireland and painful austerity measures across the region— and one thing is clear: while Slovaks will again turn out in droves on Dec. 31, the cheer will have nothing to do with belonging to the euro.

The pride felt back then at being the first in the former Soviet bloc to adopt the euro has been tempered by the responsibilities that come with sharing a common European currency.

Two years ago, the euro was viewed as a safe haven of financial stability, insurance against wild swings of national currencies that could throw national budgets out of kilter and threaten economic growth. For Slovakia, it also signaled arrival into the prosperous club of EU nations less than two decades after the fall of the Iron Curtain.

Now, as eurozone nations are asked to help bail out others overwhelmed by debt and the risk of contagion spreads beyond Ireland and Greece, adopting the common currency is no longer a top priority for former communist countries still outside the zone. And in newcomer countries, like Slovakia, some now see the euro as a burden, not a blessing.

"It seems that they allowed us to enter only to pay for their debts," said Petra Hargasova, a 22-year old economics student, her hands cupped around a glass of mulled wine to fight the chill while taking in a Bratislava Christmas market.

Some in the Slovak leadership are even looking for a way out.

In a recent commentary in the Hospodarske Noviny business daily, Parliament speaker Richard Sulik sent ripples across the already edgy eurozone by arguing that Slovakia should be ready to abandon the euro and switch to its former national currency.

The Finance Ministry was quick to dismiss his remarks and experts note that the quick fix proposed by Sulik would likely backfire. Economist Nicolas Veron of the Brussels-based think-tank Bruegel says that leaving the eurozone "would be economically disruptive" for the nation.

On the plus side, dropping the euro would allow a nation like Slovakia to devalue its national currency. That would help it boost its trade competitiveness against eurozone nations wrestling with the costs of the bailout and tightening their own belts.

At the same time investors are likely to punish defectors, pulling out in fear that their euro-denominated assets will be converted and devalued, to the point of possible financial collapse for the nation involved.

But anti-euro sentiment remains strong in a country that defied its partners earlier this year by refusing to provide its ?800 million ($1.05 billion) share of the ?110 billion ($145 billion) EU bailout loan for Greece.

"Everyone with common sense can see that the system is ill," said Matus Posvanc, an analyst from the F. A. Hayek Foundation, a conservative think tank in Bratislava. He called attempts to bail out Athens futile "because Greece's bankruptcy is inevitable."

With euro-skepticism extending into the top levels o

In refusing to pay its share of the Greek bailout package, "our main objection was … that it was only the taxpayers who have to pay," Slovak Finance Minister Ivan Miklos told The Associated Press. "But the banks, which contributed to the problem and made profit by providing loans to problematic countries in the past, didn't have to pay a single cent."

"To maintain such practice means to repeat the previous mistakes," he said.

Miklos argued that the current rules undermine a trust of people in the free market economy.

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