Slovakia in the Euro Αrea – Costs and Benefits

Purpose: Examine Slovakia’s path to the euro area, the related costs and benefits, and possible implications for Poland. Design/Methodology/Approach: A critical review of literature on optimum currency areas and costs and benefits of joining a monetary union. Statistical analysis and econometric modelling are applied as well. An econometric model is constructed and estimated with the least-squares method (LSM). The results of the model estimation are analysed. Findings: The analysis of the model estimation results suggests joining the euro area has had a significant positive effect on economic growth in Slovakia. The EUR variable has a statistically significant and quite considerable impact on GDP fluctuations in Slovakia in the period studied. The following conclusions can be posited, therefore: joining a monetary union is greatly recommended to such a small, highly open economy with an uncompetitive currency, although Slovakia joined the full Economic and Monetary Union at an unfortunate time of a financial and fiscal crisis. The pandemic crisis also had some adverse effect on the cost-benefit relation of the euro area membership. It seems, however, Slovakia has managed to gain some measurable positive effects of its joining the euro area and the benefits can be seen as outweighing the costs. Practical Implications: The results may serve to analyse costs and benefits of a small, open economy joining an economic and currency union and to choose an appropriate moment for such an operation. The study can be of use to researchers and political decision-makers. Originality/Value: The paper raises an original problem of a small, open economy and its path to the membership of a currency union. It’s a contribution to the theory of economic and monetary unions which identifies the costs and benefits of joining a currency union using the example of Slovakia.