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EDITORIAL

Adding fuel to the fire of doubt

THERE is much psychology involved in terms like “golden age” and “crisis”, be it the zenith or the crash of a company - or world financial markets - especially since the name of an established institution can quickly become as fleeting as a wrongly managed heritage.

THERE is much psychology involved in terms like “golden age” and “crisis”, be it the zenith or the crash of a company - or world financial markets - especially since the name of an established institution can quickly become as fleeting as a wrongly managed heritage.

There is also a great deal of psychology involved in some of the decisions of the Robert Fico government as it tries to influence people’s investment choices and tells them that only the government can really shelter them from the potential harm caused by foreign corporations, investment groups, media, and vicious retailers - to name but a few.

Regardless of what lays behind such tactics - whether it is a well-intentioned move based on in-depth analysis, or a piece of crude party propaganda - shaking the trust of clients and consumers in companies or systems actually risks bring down financial institutions that no one ever imagined could collapse.

Prime Minister Robert Fico does not trust private pension management companies. Neither does the agent of his social policies, Labour Minister Viera Tomanová. In the past he has compared these funds to the pyramid schemes which collapsed years ago, taking millions of crowns of citizens’ deposits with them.

Recent quakes on European financial markets have added fuel to Fico’s fire of doubt and in a sense freed him to toy, once again, with the country’s pension system. Earlier this year, his government opened up for six months the second pillar of the pension system, which allows contributors to pay into privately-managed funds. This allowed people the opportunity to return to the alternative, publicly-managed scheme.

After the six months had elapsed and Fico’s dream of a mass exodus of clients from the private pension fund management companies had failed to materialise, the prime minister said that clients now needed stability and that the government would not open up the system again. But now, less than three months later, the cabinet has decided to do exactly that: it will be re-opened from November 15 until June 2009. The Labour Ministry assumes that this time between 30,000 and 150,000 clients will leave the private schemes.

Fico firmly believes that the second pillar is the most vulnerable to the crisis and that people need to be protected. But neither the country’s central bank nor pension management companies share Fico’s concerns. Even the EU commissioner for economic and monetary affairs, Joaquín Almunia, said recently that the Slovak private pensions pillar should not pose a threat to the sustainability of fiscal policy in the future.

Private fund managers warn that it is exactly the instability caused by opening up the system again and again that might harm their clients. Turning the country’s pension system into a revolving door harms both the trust of consumers and also foreign investors: not a good thing when a cloud of crisis is hanging over the markets and the question of consumers’ trust might decide when the heavens open.

Nor does Fico trust Slovak retailers and service providers, since his government has now blessed the nation with a price council tasked with monitoring how prices behave in Slovakia.

The government wants to shelter the population from what it believes is a grave threat: unjustified price hikes during the euro’s adoption, and speculation.

It is not only business associations which have said on several occasions that their members will be restrained in handling prices during the euro-switch.

Lawyers and the opposition have also warned that deciding whether price changes are a justified response to market conditions or an unjustified hikes under cover of euro-adoption will be highly contentious.

Manufacturing a price council, however, suggests some unwillingness to either understand or accept the most basic principles of the market economy, where demand and supply generate optimal prices and sellers, not the government, set prices.

(Un)surprisingly, several members of the price council aren’t actually economists or market-watchers with their fingers on the pulse of the market. Education Minister Ján Mikolaj, for example, is a member of the price watching board, as is Health Minister Richard Raši: neither had previously been noted for their sound grasp of economics. Their job is to stand guard and kill any intention to harm the people at its very root.

In fact the Slovak Trade Inspectorate is already watching prices for price hikes, with the Association of Slovak Consumers in hot pursuit. Still, the prime minister obviously feels that there are not enough bodies watching, so has added a further dash of populism by getting his team to produce the present council.

Yet there is a further, misguided, psychology involved in Fico’s price council. If he is assuming that voters are unlikely to watch closely what good the price council actually does, he is right. They won’t.

Instead, what they’ll get is the illusion of protection from a wide variety of “evils” that certain Slovak politicians believe market economics generate.

What the existence of such a price council does is target consumers’ trust in the market and its freedom to regulate itself, instead presenting political decisions about the market as superior to business solutions. Which, of course, they rarely are.

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