Thursday, June 22, 2006


Quick country profile: Slovakia is a mountainous, landlocked Central European country with a surface of 48,845 sq kloms (think twice the size of New Hampshire) and a population of just under 5.5 million. Its capital is Bratislava. The Slovak Republic (Slovenská republika) is actually the southwestern part of the former republic of Czechoslovakia, and originated when this artificial state split up on January 1, 1993, four years after the so-called Velvet Revolution ended communist rule. Its northeastern half became the Czech Republic, capital Prague. Slovakia’s GNP is about 90 billion US$ (2005 estimate: 87.32 billion) to which the agricultural, industrial and services sectors contribute with 5.5, 28.4 and 66.1% respectively. Its Head of State is a president, a function held since June 2004 by Ivan Gasparovic. The Prime Minister is usually the leader of the major party or a majority coalition. The legislative body is a 150 strong unicameral parliament called the National Council of the Slovak Republic (Národná rada Slovenskej republiky), its highest judicial body is the 13-strong Constitutional Court (Ústavný súd).

In the nineties, Slovakia got a bad name under its populist and autocratic PM Vladimir Meciar, a former communist who did not bother to harass ethnic minorities and use his secret service to bully political opponents, but this wasted period ended in 1998 when Mikulas Dzurinda, of the SDKU, the Slovak Democratic and Christian Union (Slovenská demokratická a kres?anská únia), took over. Dzurinda was the man who effectively led Slovakia from a centrally planned to a (very) free market economy, for which his government undertook major privatizations, allowed the banking sector to come almost completely in foreign hands and, most importantly, introduced a flat tax of 19% (the Slovak flat tax was also exceptional for being applied not only to personal but also corporate income as well as VAT). The results exceeded all expectations. In 8 years, unemployment was nearly slashed 50% (albeit to a still very high 15%, the second highest number in the EU, after Poland), economic growth rates were amongst the highest in Europe (5.4% in 2004), and inflation fell from 12% in 2000 to under 3% in 2005. Perhaps the most crowning achievement of Dzurinda's reign, apart from quietly guiding Slovakia into the EU and NATO, is that close to one hundred thousand Slovaks found (relatively) well paying jobs in Slovakia's brand new Peugeot, Volkswagen and KIA factories, or in the businesses supplying those plants. Such is the success of this program that it is even projected that by 2008 Slovakia will have become the country with the biggest car production per capita in the world.

Mikulas Dzurinda, SDKU

On Saturday June 17, there were parliamentary elections in Slovakia. With such an outstanding record, you'd think Mikulas Dzurinda would reap the benefits of his and his governments hard labour, right?


They were won by the leftist SMER party of Robert Fico, a former communist. "Smer" is Slovak for "Direction", and I fear the Slovaks just chose for a direction towards and economic boneyard. From EUObserver:

Robert Fico, SMER
EUOBSERVER / BRATISLAVA - Slovakia has decided to turn the wheel from right to left, as the opposition Social Democrats emerged as a convincing winner of the country's Saturday (17 June) elections, the first ballot since EU membership in 2004. The leftist party Smer (meaning "Direction") secured a third of the representation in the 150-seat Parliament and is likely to end the centre-right government of Mikulas Dzurinda, the longest-serving prime-minister in central Europe. During his eight years in power, Mr Dzurinda took the 5.4 million people country from international isolation into the EU and NATO, carried out sweeping free-market reforms, secured record levels of foreign investment and turned Slovakia into one of Europe's fastest-growing economies.

But despite these achievements, the voters turned to the leader of Smer Robert Fico. Mr Fico has capitalized on reform fatigue and pledged to overturn many of the changes, saying they have benefited only the rich. "There is a chance that Slovakia will strengthen solidarity and social justice.", Mr Fico said after the election night. According to his programme, Mr Fico plans to scrap the 19-percent flat tax and fees for medical care and halt privatisation.

Fico's SMER party won 29.1% of the vote, which, luckily, is just short of a parliamentary majority. By contrast, Dzurinda's SDKU won only 18.4%. This will likely translate into 50 seats for SMER and 31 for SDKU in the Slovak Parliament. Now, while SMER's showing was strong, it will still have to form a coalition to capitalize its win, and the options are:

a.) a German-style SMER-SDKU mariage de raison, which is unlikely. Fico promised that when he would come to power he'd scrap the 19% flat tax, and Dzurinda has already stated that he will not step into a coalition to demolish the hard-fought reforms.

b.) a coalition between SMER, a small Christian Democratic party (which got 8.3% of the vote) and the Ethnic Hungarian Coalition Party (11.7%).

c.) a grand leftist coalition between SMER and the centre-left HZDS party, led by former PM Meciar, which got 8.8% of the vote, with the support of the nationalist Slovak National Party (11.7%).

Now, one can talk about coalitions all one wants, but the crux of the matter is that the Slovaks rewarded a well-performing centre-right government by voting for an agitator whose recipe to reduce unemployment is to... scrap the flat tax, which was the pivotal element in Slovakia's economic boom, and to... raise the taxes of the rich. Right. Where have we heard that before?

Personally, I don't want to hear all the crap about the new wealth unevenly being distributed over the country with the cities reaping all the benefits and the rural areas getting nothing. I don't want to hear either about high unemployment. It's a damn serious issue, but I fear that the former eastern bloc countries with their large agricultural sectors inevitably have to go through a transitional period where very large numbers of workers made superfluous by (EU imposed) rationalization and automatization of agriculture cannot immediately find a job in the emerging new industries. Serious politicians should recognize this conundrum, and while any honest, rational and decent challenge of Dzurinda's policies - his government did have its flaws - would have been welcome after his 8-year reign, the challengers should at the same time have recognized the obvious correlation between flat tax, tight budget control and a booming economy (which, admittedly and understandably, did not produce golden mountains for everybody). In eight eastern european countries there's now a flat tax, ranging from Russia's 13% to Lithuania's 33%, and in all of them the economy is booming.

In Red: Flat Tax applied in Eastern EuropeInstead, the challenger made a promise to "make the rich pay". What nonsense. With the exception of party bosses, there were virtually no rich people in Slovakia before Dzurinda - courtesy of 40 years of planned economy, thank you very much. Those who are rich today are so because they worked for it. And WHY did they work for it? Because a flat tax, contrary to Old Europe's "famous" progressive tax scales, does NOT punish those who are prepared to work harder to get wealthier. Now obviously, in Slovakia a lot of people have gotten rich over the past 8 years - because if they set on earning more, they were not punished for it. In other words, the Slovaks were ENCOURAGED to work more. And here we have this genius saying "We need a Slovakia with more solidarity and justice... It means that, if we form the government, benefits from our country’s development will not be restricted to a small group of people".

I have heard this tune for so long that it makes me want to puke. I live in a part of Belgium, Wallonia, where the ruling commies, who go by the name of Parti Socialiste, have tried the recipe for almost fifty years... Wallonia is dying, and survives only on emergency help from Flanders. Looking at the Slovaks, I can't help but comparing them to another eastern european people: the Bulgarians. In the early nineties, when after the fall of the Iron Curtain the Bulgarians were first allowed to vote, Belgian commie TV managed to find, on the eve of the elections, two Bulgarians smack in the middle of Brussels. As I watched the BRT newsreel, I saw the reporter asking them whether they thought the Social Democrats, those were the commies under their new name, would win. The two chaps grinned and answered with broad gestures that Bulgarians were smart people!!! ...they certainly would not vote those in power who had kept them under for forty years!!! (as if you have to be smart to vote for other guys than the ones who fed you all life long a diet of cucumbers and mustard). Next day, BANG! The Bulgarian Communists Social Democrats score a landslide win!!! Now that's thirteen years ago, Bulgaria's GNP dropped by one third till 1997, and today it is still trailing behind the rest of the ex-Warsaw Pact (they haven't introduced a flat tax rate neither, thank you). I'm wondering if there's not some Bulgarian blood running through Slovak reins.


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