Monday, October 10, 2011

Domestic battles of Slovakia threatening euro

Slovakia is the last member of the eurozone to agree to expanding the powers of EFSF (European Financial Stability Facility). Slovakia's prime minister Iveta Radicova (left on the picture) is finding it hard to reach an agreement with her coalition partners who oppose EFSF. Richard Sulik (right on the picture), leader of Slovakia’s libertarian Freedom and Solidarity (SaS) party last week agreed to supporting the EFSF only if Slovakia would not participate in ESM (future substitute of EFSF) and only if Slovakia would have a veto of how the funds would be used in EFSF. The prime minister refused the offer.

Slovaks have publicly opposed helping heavy borrowers and those who don't follow eurozone rules. Let's see how Slovaks themselves manage in that area.

Slovakia has been running a huge budget deficit for the last two years (-8% in 2009 and -7,9% in 2010 - Eurostat). Maastricht criteria require it to be under 3% of GDP. In former years Slovakia has done well in that area. Slovakia plans to run a 4,9% deficit this year and has a budget drafted for 2012 which foresees a 3,8% deficit.

Slovakia doesn't have as much debt as the problematic countries in the eurozone do. It had a debt burden of 41% of GDP in 2010 which is bound to increase in current and next year.

Slovakia isn't the best performing country in the euro area. Yet it is possible that it will be the only one not supporting the EFSF legislation. And it is not because Slovakia has a lesson to teach to rest of the Europe about how to balance the budget but it's because Slovakia has power-hungry politicians not willing to do the right thing.

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