A stabilising factor of Slovakia’s financial sector got into crisis

Slovak Foreign Policy Association

Vladimír Bilčík
Despite initial estimates in late 2008 that did not expect very considerable influence of the financial crisis on Slovakia’s economy, Slovakia recorded a deep dip in its economic performance in 2009. In addition, the Euro, which brought comparable stability to Slovakia’s financial sector with the finalisation of Slovakia’s Eurozone entry, was suddenly in a crisis caused by the dire economic and financial situation in Greece. In 2009, Slovakia followed the path of other Eurozone countries when it introduced the unlimited deposit guarantee immediately after the proposal by the European Commission. Although several possibilities were discussed as alternatives to the unlimited deposit guarantee, the overpowering explanation for the unlimited deposit guarantee were the similar reactions of other EU countries and thus an attempt at sustaining Slovakia’s competitive edge.[1]
In 2010, Slovakia reacted with a lot more caution to proposals which were to deal with the economic crisis. With its parliamentary elections held on 12 June 2010, Slovakia’s government, led by Prime Minister Fico, agreed to the framework decision on the finance package for Greece, but left the final stamp of approval on the country’s bilateral loan to Slovakia’s new parliament. However, at least three of the four political parties that are to form Slovakia’s new government and hold new parliamentary majority have either rejected or been sceptical toward the adoption of the package. These include the Slovak Democratic and Christian Union (SDKÚ-DS) of Slovakia’s newly designated Prime Minister Iveta Radičová and two new parties (the liberal Sloboda a Solidarita, Freedom and Solidarity – SAS, and the new Hungarian party Most-Híd – Bridge). Their arguments were mainly twofold: that such loan would undermine the already unhealthy state of public finance in Slovakia and that it is irresponsible to lend more money to the notoriously irresponsible Greek state (especially articulated by Freedom and Solidarity). Only the Christian Democratic Movement (KDH), the fourth party of the expected coalition, has been willing to consider supporting the finance package for Greece. Hence, Slovakia’s support for its bilateral loan to Greece in the context of the finance package for Greece is questionable and at the moment it does not look likely that Slovakia will lend money to Greece, though once the winners of the parliamentary elections take over their governmental responsibilities, they may also reconsider their initially firm positions.
Similarly, the outgoing Prime Minister Robert Fico articulated his support for the creation of the European Stabilisation Mechanism, but he is leaving the binding decision to the parties of the new governing coalition. The point is that Slovakia’s signature is necessary in order to activate this new stability mechanism and both in the run-up to and right after the parliamentary elections on 12 June 2010 the majority of the winning parties (SDKÚ-DS, SAS and Bridge) rejected the proposed European Stabilisation Mechanism. Only the KDH indicated lukewarm support for the new mechanism, though the parties of the new government have been less willing to comment on their positions toward the stability mechanism since elections took place, arguing that they need more time to study the details and implications for Slovakia. In the latter half of June 2010, it looked a bit more likely that Slovakia would ultimately sign up to the new European Stabilisation Mechanism, though it might not disperse its bilateral loan to Greece.[2]
In Slovakia, the main lesson of the current crisis for the Stability and Growth Pact is a shared call to become serious and consequential about the existing rules. Also, Slovakia in principal accepted the proposed role of the European Commission, which puts it in control of the member states’ national budgets. The State Secretary of the Ministry of Finance Peter Kažimír even welcomed this new role for the European Commission, though he also suggested that the Commission would have to undergo reform in order to take up this controlling function effectively.[3] There was little discussion of the Europe 2020 Strategy in Slovakia, though two points are worth stressing. Slovakia’s representatives called for the replacement of the term “poverty” with the word “cohesion”, since, according to Eurostat numbers, Slovakia has the fourth lowest level of poverty in the EU, yet wages and social standards are lower than in most other EU member states. Moreover, the eradication of poverty should be one of the by-products of the Europe 2020 Strategy whose main goal should be enhancement of economic growth.[4] Second, it is a long-term strategy whose language is not as extravagant as that of the Lisbon Strategy, but whose overall goals are hardly realistic from Slovakia’s current perspective.

[1] SME: Garancia sú na papieri. Banky sú zdravé, 9 January 2009.

[2] See Euractiv.sk: Slovensko zatiaľ nemá jasné stanovisko k pôžičke Grécku, 17 June 2010, available at: http://www.euractiv.sk/buducnost-eu/clanok/slovensko-zatial-nema-jasne-s... (last access: 29 June 2010).

[3] Euractiv.sk: Peter Kažimír: Kontrola rozpočtov nie je ohrozením suverenity, available at: http://www.euractiv.sk/ekonomika-a-euro/interview/kontrola-rozpoctov-nie... (last access: 29 June 2010).

[4] Euractiv.sk: Ivan Korčok: Východná Európa žiada férové zastúpenie v Európskej zahraničnej službe, available at: http://www.euractiv.sk/obrana-a-bezpecnost/interview/vychodna-europa-zia... (last access: 29 June 2010).

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