Elections no threat if reforms top agenda

THE PROSPECT of early elections on June 17 has met with an eerie phlegmatism around Slovakia. The Slovak crown has returned to its usual strength after a brief wobble, the most attractive billboard space has already been sold out, and politicians have agreed to sideline the most controversial issues of the day and get on with preparations for the ballot.

THE PROSPECT of early elections on June 17 has met with an eerie phlegmatism around Slovakia. The Slovak crown has returned to its usual strength after a brief wobble, the most attractive billboard space has already been sold out, and politicians have agreed to sideline the most controversial issues of the day and get on with preparations for the ballot.

Do foreign observers regard recent events in Slovakia with the same ho-hum complaisance? The Slovak Spectator spoke to Bruno S Sergi, professor of international economics and political economy at the University of Messina, Italy, and Kevin Deegan-Krause, assistant professor of political science at Wayne State University, USA, about the impact that the collapse of Slovakia's ruling coalition in February might have on the country's image abroad.

The Slovak Spectator (TSS): After the ruling coalition got over the departure of Pavol Rusko's neo-liberal New Citizen's Alliance (ANO) from the government last fall, political analysts forecast that the conservative Christian Democratic Movement and Prime Minister Mikuláš Dzurinda's Slovak Democratic and Christian Union (SDKÚ) would keep the ruling coalition together until the end of election term in September 2006. Was anyone surprised this did not happen?

Kevin Deegan-Krause (KD): While the immediate circumstances of the current affair were abrupt, they clearly reflected an ongoing development in which a conflict between cultural conservatism and liberalism has joined and may eventually replace the conflict over national identity and democracy as the main basis of political competition in Slovakia.

This may not happen right away - memories of [former authoritarian Prime Minister Vladimír] Mečiar's rule [in the 1990s] and fears of [the rise to power of populist opposition party Smer leader Robert] Fico may keep the current coalition of Catholics and liberals together in some form. But in the long run it would not be surprising if Slovakia followed the pattern of Poland and Hungary, where cultural questions rather than economic or national ones are what really differentiate parties from one another.

TSS: Could the recent political developments harm Slovakia's international credit?

KD: As for the international reaction, for the moment Slovakia can fall back on the store of international confidence that it has built up over the last seven years of relative stability.

While it is true that some Western governments and investors occasionally express wariness of a Fico-led government, the only difference for them is whether this might come to pass in June or September.

Even the worst-case scenarios, furthermore, are not so bad that Slovakia faces an immediate loss of international confidence.

TSS: The clash between the KDH and SDKÚ temporarily affected the Slovak currency, but it recovered following the announcement of early elections. However, analysts warn that during the pre-election period, both the markets and foreign investors might be more cautious regarding Slovakia.

Bruno S Sergi (BS): There is no logical reason to think that early parliamentary elections will have a negative or a positive impact on the flow of foreign investment, at least in principle. It is prolonged political instability and the absence of pro-business policies, rather than elections per se, that could alter foreign investors' strategic decisions.

Slovakia embarked on an utterly new policy toward FDI at the end of the 1990s [when the first Dzurinda administration took power]. International investors and large corporations have taken a closer look at this inspiring country since then, and growth and productivity have accelerated in recent years to such an extent that Slovakia is ranked among the top FDI destinations in the world. However, we must bear in mind that investors will continue to demand stability and incentives.

In light of increasing competition with neighbouring countries, such as Ukraine and the Balkans, the competitive advantages that Slovakia has been able to accumulate in the past few years could easily be disrupted by signals of political uncertainty or - even worse - political priorities that are no longer business-friendly.

The new government that emerges from the elections in June must strive not to scare international investors, who in turn must avoid overreacting. Greater respect for ethics in business in Slovakia would be welcome, while incentives that are compatible with EU rules and domestic fiscal equilibrium should continue to be offered to investors.

For Slovakia to compete with emerging markets in Europe and remain among the best destinations for investors, extra reforms are necessary, and must go in the right direction. Experiments could jeopardize future investments.

TSS: Slovakia has some strict EU commitments to meet if it wants to adopt the common EU currency in 2009. What are your thoughts on these fiscal commitments and the shifts they will require in the next government's policies?

BS:A lack of fiscal soundness together with policies that are not forward-looking could boost inflationary pressures and cause macroeconomic turmoil. This could push the central bank to dispel fears by increasing interest rates, which in turn would worsen the budget deficit and the national debt.

If this were to happen, the Maastricht criteria would become unattainable and the country would not be prepared to join the eurozone by 2009.

In sum, uncertainties over euro membership and further foreign investment inflows are two sides of the same coin. If Slovakia is hit with uncertainty and political hypocrisy, this could generate problems. In contrast, the solution to such fears lies in putting political stability and superior economic reforms at the top of the political agenda.

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