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Report predicts major benefits from EU entry

SLOVAK citizens can start looking forward to joining the European Union, said economic experts from the Slovak Academy of Sciences (SAV) upon release of their study of the effects of EU integration on the Slovak economy.
The report on the economic and social impact of Slovakia's EU entry is the first expert document predicting what will happen to the country after it joins the 15-nation union, which could happen as early as 2004.
Although release of the study's preliminary results sparked alarm two months ago, with predictions of record unemployment and inflation, the presenting team, including parliamentary foreign affairs committee head Peter Weiss and Deputy PM for Integration Mária Kadlečíková, said that the final conclusions were much more upbeat.


EARLIER fears of dramatic price rises have been calmed by EU-impact report authors.
photo: TASR

SLOVAK citizens can start looking forward to joining the European Union, said economic experts from the Slovak Academy of Sciences (SAV) upon release of their study of the effects of EU integration on the Slovak economy.

The report on the economic and social impact of Slovakia's EU entry is the first expert document predicting what will happen to the country after it joins the 15-nation union, which could happen as early as 2004.

Although release of the study's preliminary results sparked alarm two months ago, with predictions of record unemployment and inflation, the presenting team, including parliamentary foreign affairs committee head Peter Weiss and Deputy PM for Integration Mária Kadlečíková, said that the final conclusions were much more upbeat.

"The mid- and long-term impact of EU entry will clearly be positive, but during some phases we should expect certain problems, and tell people about these problems," said Weiss.

"Increases in prices will not be that significant, because they will be accompanied by growth in nominal and real wages," added Kadlečíková.

The study predicts real wage growth of three per cent until 2004, slower growth of two per cent in 2005 and 2006, and four per cent growth in 2007.

The SAV also estimates that nominal wage growth will outpace growth in prices, with 2008 wages at nearly twice 2001 levels, accompanied by price growth of 49 per cent for the same period.

However, SAV cautions that even with such growth, price levels in Slovakia will still significantly lag behind western European countries, and that consumer prices in 2006 will still be less than half the average EU level.

The authors of the study say that Slovakia's now relatively low prices are the result of efforts to keep inflation down in the 1994 to 1999 period, pointing out that while inflation was 8.7 per cent on average in Slovakia during these years, it reached 18 per cent in Poland and Hungary. Those countries now have prices at 48 and 43 per cent of EU levels, respectively.

"Prices [in Slovakia] should increase from the current 36.9 per cent [of the EU level] to 46.2 per cent in 2006," said Richard Outrata from SAV.

By comparison, the poorest EU countries like Portugal, Spain and Greece entered the EU with prices at 50 to 70 per cent of Union levels.

Besides prices, Slovakia's lagging gross domestic product (GDP) per capita remains another area of concern.

While Slovakia has an average per capita GDP of about half the EU average, the report argues that EU entry should bring a higher rate of economic growth for the new member.

"Growth in the Slovak economy could reach 4.8 per cent from 2004 to 2006, and possibly 5.2 per cent in the 2007 to 2008 period," says the study.

"The current economic level, measured by purchasing power parity per capita, is around 49 per cent of the EU level. According to estimations, Slovakia could move towards 53.1 per cent in 2006, and 55 per cent in 2008," the study continues.

SAV's Ivan Okáli, a co-author of the study, estimated that: "With five per cent annual growth, Slovakia will reach the production levels of current members by the year 2020. It would take 40 years to reach that level with 4 per cent growth."

The acceleration in GDP growth should also bring about an average annual employment growth rate of 1.2 per cent between 2004 and 2008, said the report's authors, disputing the 30 per cent national unemployment figure widely reported in the Slovak media following the study's preliminary presentation in May.

"The authors never declared this [30 per cent figure]," said Outrata, adding that: "The unemployment level should fall from its current 19 per cent to 15 per cent by 2008."

Another positive prediction SAV makes is increasing foreign investments, which will drive higher GDP growth and increasing employment.

"Foreign direct investments could grow from the current level of $800 per capita to $2,300 in 2008," says the report.

The neighbouring Czech Republic reached a foreign investment level of $2,300 per capita in 2000, while the EU average is $3,000 per capita.

The resulting foreign currency inflow could also strengthen the Slovak currency, says the report, estimating that the crown could strengthen against its euro benchmark.

However, SAV stresses that these are only predictions that will not come true unless all Slovak economic actors cooperate in the common mission.

"We have to increase activity at every position - whether government, state institutions, or at the regional level. The regions also have to take part in these things, and prepare good and efficient projects for the use of [EU] structural funds. Above all, companies should focus on productivity growth and innovation," said Outrata.

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