Prudence defeated populism in Slovak elections

GOOD news from Europe is hard to come by these days. Slovakia has produced some. It’s about sound economic policies that can win an election against spineless populism.

GOOD news from Europe is hard to come by these days. Slovakia has produced some. It’s about sound economic policies that can win an election against spineless populism.

The outcome of the Slovak elections last week was largely ignored by the outside world. Yet recent Slovak history offers a lesson that may well prove helpful for Europe at large. The elections in Slovakia might also lead to the premature end of the widely publicised rescue package for the eurozone, the ‘special purpose vehicle’.

Fico, the soon-to-be former Slovak prime minister was so arrogant and angry in the election campaign that he even made it into The Australian newspaper. It reported that “Fico has sooled [i.e. set] lawyers on to cartoonist Martin ‘Shooty’ Šútovec, who had the impertinence to depict him as spineless.” But spineless he was to the very last minute. Fico promised his EU partners that Slovakia would support the rescue package, while back at home he promised that the package would only receive final approval from the newly elected parliament. Such an outcome is now less likely.

The result of the elections also means a significant comeback for the political forces that had, after 1998, transformed Slovakia for the better. What might soon prove consequential for the EU is the fact that what was the main opposition party, led in the election by future prime minister Iveta Radičová, forcefully objected to the bail-out of Greece, and so did the other centre-right parties.

The radical transformation of the Slovak economy that entailed the introduction of the flat tax, turned the country into one of the most dynamic economies in Europe. However, Slovakia’s experience shows that sensible economic reforms are not just about ensuring conditions for economic prosperity. More importantly, they lead to more economic literacy amongst the electorate.

It was thanks to these reforms that Slovakia is today one of the very few countries in Europe that has a sustainable pension system, in which compulsory superannuation encourages people to engage with the free market in a way that makes them economically more astute. Anti-capitalist populism is bound to be less popular amongst a population of shareholders.

These fundamental macroeconomic conditions remained unchanged under the Fico-led government. No populist can raise taxes. Hence, Fico continued to support the flat tax, his social democratic rhetoric notwithstanding. The main difference was his utter disregard for budgetary discipline. In this context, the global financial crisis in 2008 was a gift from heaven. It gave Fico the perfect justification for reckless spending.

Enter the Greek difficulties. Arguments about the need to spend more state money than is extracted in tax revenue lost credibility. Fico’s populist rhetoric became less persuasive. This is not to ignore the fact hat Fico’s party remains the single most powerful actor in Slovakia. It is encouraging to see, however, that he was left without coalition partners to form a new government.

There are two simple lessons from this story. Provided the electorate is on the whole economically literate, anger does not win you elections, sound economic policies do. As for the consequences for the EU: if the Slovak government has enough guts to stick to its pre-election position and reject the rescue package, Slovakia, a small country of 5 million people, may well make a major contribution to restoring common sense to Europe’s economy.

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