Books on Slovakia
% of GDP
Update No: 111 - (25/08/06)
Slovakia is very keen to join Euroland - quite why is a bit of
a mystery, given the poor performance of its member economies to date. But
fashion dictates everything - and anything with a 'Euro' prefix these days is
all the rage in the former communist world, assumed to be the passport to the
Budget talks begin
The Slovak government on August 16th approved a resolution based on which the
public finance deficit in 2007 should not exceed 3 % of GDP, a prime requirement
of joining Euroland. The budget draft is only a working version and does not
include any cabinet priorities as yet.
The government has approved a budget framework for the upcoming three years
based on which the budget deficit in 2008 should decrease to 2.5% and further to
2% in 2009. PM Robert Fico said that the budget's "first version must
undergo major changes" although he promised that the deficit target would
be adhered to. The government has pledged to fulfil all criteria required for
Slovakia's entry to the eurozone in 2009, including keeping the public finance
deficit under 3 % of GDP.
Further talks are expected on the budget in the upcoming months. Many ministries
are unhappy with the cuts in their budgets that were proposed by the Finance
Ministry. The cabinet now has less than two months to agree on the budget.
The government plans to submit the draft budget to parliament by October 15. By
that time, it also has to discuss laws that will help shape the new budget, such
as the law on a reduced VAT rate for selected goods, or a higher income tax rate
for high earners.
Things are not so good in Central Europe right now. Political tensions in
Central and Eastern Europe are casting a shadow over investor confidence
throughout the region that is struggling to recover from the recent sell-off
across emerging markets. Analysts and investors have been unsettled by Ukraine's
battle to forge a new government and the Czech Republic's post- election
But the emergence of populist governments in Slovakia and Poland in particular
have sent shudders through the international investment community. "These
countries are used to political turmoil, but its looks pretty grim at the
moment," said Lars Christensen, senior analyst at Danske Bank.
Fico displaces Dzurinda
After an eight-year rule by a centre-right cabinet under the leadership of Mikulás
Dzurinda, which was very popular in Brussels and Washington, Slovaks voted for
change earlier this year. This year's symbol of "change" is Smer-Social
Democracy led by Robert Fico, which received almost one-third of all votes cast
(almost 680,000, which is about 300,000 more than in the 2002 elections).
Analysts are concerned that both politics and economics could be both moving in
the wrong direction in Slovakia with the new government led by Prime Minister
Robert Fico having severely rattled investors' confidence in the country.
Once a model of economic transformation, Slovakia's new coalition government
fronted by Fico's Social Democrats and including ultra-nationalists and the
Movement for a Democratic Slovakia led by a former authoritarian prime minister,
Vladimir Meciar, has sparked fears about the outlook for foreign investment in
At the same time, Slovakia's economy currently risks overheating with
inflation running at above 4 percent, the nation's current account ballooning
out, GDP growth surging and a drop in the flow of foreign investment, which has
helped to prop up the currency, the koruna.
While Fico insists that Slovakia's investment climate will not be put at risk by
the new government, his threats made prior to the June election about rolling
back economic reforms launched in recent years have deeply unsettled investors.
The real test of the new political world taking shape among the EU newcomers is
likely to be their commitment to joining up to the Euro, as we have seen.
Analysts doubt whether the Fico government's spending plans will allow it to
meet its 2009 deadline for signing up to the common currency.
Budapest appalled at Slota's anti-Hungarian statements
Populism has a way of unleashing ethnic tension. Gypsies and Hungarians are
at particular risk in Slovakia.
The Hungarian government is shocked by anti-Hungarian statements by Jan Slota,
leader of the Slovak National Party (SNS), now a coalition member, which he made
for the Saturday (July 22) edition of the Czech daily Lidove noviny, Hungarian
Foreign Minister Kinga Goencz said at a meeting of diplomats on July 24.
Slota, a well known bigot, said that ethnic Hungarians in southern Slovakia
oppressed Slovaks. The SNS is a junior partner in Fico's three-party government
arising from the June general elections.
"We were shocked by Slota's weekend interview," Goencz said, adding
that Hungary had hoped that the tone of Slota's statements would change after
his party joined the governing coalition.
Slota said he wondered why no one abroad or Slovak senior officials resented the
activities of the Hungarian Coalition Party (SMK) in Slovakia that questioned
the borders delineated after World War One, and the Benes decrees, which
sanctioned the deportation of Germans from Czechoslovakia after World War Two,
and sought the cancellation of the 1920 Trianon treaty, one of the fundaments of
Slota said that the SNS did not want to oppress anyone or to ban the use of
their mother tongue. "We are only struggling against those SMK officials
who as a minority oppress the majority nation on its sovereign territory, on the
territory of Slovakia," Slota said.
Slota said he envied Czechs for having been able to deport ethnic Germans from
the former Czechoslovakia.
There are some 500,000 ethnic Hungarians, who make up about ten percent of
Slovakia's population. They mostly inhabit southern Slovakia alongside the
border with Hungary.
"It is apparent that such statements... are not consistent with European
norms," Goencz said. "There is undoubtedly space for the Slovak
government to comment on the statements," she added. She said that if the
Slovak government does not disavow Slota's words, Hungary would officially ask
it to do so.
PMU slated to approve airport privatisations
Vienna airport operator Flughafen Wien was convinced that the Slovak Antitrust
Office (PMU) would approve the privatisation of the Bratislava and Kosice
airports, Slovak Spectator reported.
"We have a valid contract signed by both parties and are currently waiting
for the antitrust office to deliver its decision," the company said.
Flughafen Wien is responding to Slovak Prime Minister, Robert Fico, who stated
that his government will step into the privatisation process and scrap the
contract if possible, it was reported. Newly appointed Transport Minister,
Lubomir Vazny, is taking a cautious stance with respect to the airport
privatisation by stating that the ministry is planning to review the contract on
the sale of the state's 66 per cent stakes in both airports. The minister
particularly considered the contract's investments terms as problematic.
Privatisation contracts to sell the majority stakes in the Bratislava and Kosice
airports were signed on February 10th 2006, after the government approved the
TwoOne consortium, of which Vienna airport is a member, as the preferred
strategic investor for the airports. The PMU is due to deliver its decision by
August 14th 2006.
Slovakia wants 49% of Transpetrol from YUKOS
The Slovakian government, which owns 51 per cent of the pipeline company
Transpetrol, has confirmed its plans to buy the remaining 49 per cent from a
Dutch subsidiary of YUKOS - YUKOS Finance B.V., and has said that a wide circle
of investors is also interested in this stake. "The Slovakian government is
trying to strengthen its position in Transpetrol and to buy 49 per cent from
YUKOS," Slovakian economics ministry representative, Branislav Zvara, said,
Interfax News Agency reported.
"The Slovakian government has decided on its future steps after an
evaluation of YUKOS's plans to dispose of its 49 per cent stake. At the moment
we cannot predict the YUKOS decision and have not been informed of its plans for
the future regarding this stake. The Slovakian government will decide whether or
not it will support YUKOS's plans only after it learns the details," he
said. Zvara said that "in fact there is a large number of interested
companies in addition to PERN and Gazprom, and there is also interest from an
American investor." In February this year Rosneft agreed to buy 49 percent
of Transpetrol for 103 million Euro. Later the government announced that it is
considering buying this stake from YUKOS. In mid-June the Polish oil transport
monopoly Przedsiebiorstwo Eksploatacji Rurociagow Naftowych "Przyjazn"
S.A. (PERN) also announced its interest in the stake. On July 27 Gazprom
announced that it plans to buy this stake for 105 million Euro. YUKOS
spokesperson Claire Davidson said earlier that YUKOS will agree its actions with
the Slovakian government, and until it receives its recommendation on this
issue, the deal with Gazprom cannot be finalised.
Spanish, Austrians, Czechs bid for mobile licence
Spain's Telefonica O2, Austria's Mobilkom and an investment group linked to
the Czech Republic's Ceske Radiokomunikace will compete for the third,
mobile-phone licence in Slovakia, Deutsche Presse-Agentur (dpa) reported.
The three finalists in a licence bid process met government requirements by each
offering at least 100 million crowns (US$3.2 million) for the right to use GSM
and UMTS frequencies. The Slovak Telecommunications Office (TUSR) was expected
to review the bids and select a winner in 14 days, agency spokesman Roman Vavro
said. The tender is the government's third attempt at boosting competition and
reducing consumer prices in Slovakia's fast-growing mobile-phone market.
Previous tenders failed for lack of interest. Slovakia's largest operator Orange
last year recorded a six percent increase in customers to 2.5 million. Second
place T-Mobile saw business jump five percent to two million customers last
year. With market penetration at 84 percent for the existing operators, analysts
say Slovakia could easily support a third operator. Market penetration in the
neighbouring Czech Republic is 112 per cent. Telefonica's interest in Slovakia
fits its Eastern Europe expansion trend. Last year it bought the leading Czech
mobile company, Eurotel, along with fixed-line operator Cesky Telecom for US$3.5