Slovakia’s decision to buck the eurozone trend and refrain from taking part in the bail-out of the Greek economy may have enraged much of the European Union, but Iveta Radicova, the country’s pugnacious prime minister, has no regrets.
“It is based on values. I will not change my value system,” Mrs Radicova told the Financial Times regarding the August decision. “The problem is for those countries which behaved irresponsibly, who did not behave according to the treaty and according to the stability pact.”
She added it would have been politically impossible for her to explain to her voters why Slovakia was lending €816m ($1.1bn) to the Greeks while she was embarking on a fiscal reform programme aimed at reducing the Slovak deficit by €1.7bn. “I cannot do it,” she said, pointing out the Greek aid package would have come to more than half of her deficit reduction programme. “For me it means I would have had to increase VAT to 23 per cent.”
The government is already moving to increase temporarily value added tax from 19 to 20 per cent as it slashes wages and employment in the civil service. This has caused severe tensions in Mrs Radicova’s coalition government, which has only 79 seats in the 150-member parliament, with unions calling for street protests later this month.
In all, spending will be cut by €970m – one-seventh of the state budget – while €730m will come from increased revenues. Slovakia will have a budget deficit of about 8 per cent this year – a legacy of the policies of the populist government of Robert Fico, who lost power to Mrs Radicova’s centre-right coalition following parliamentary elections in June.
Mrs Radicova, 53, a former labour minister and presidential candidate, was a surprise choice to take over the premiership earlier this year after Mikulas Dzurinda, the previous prime minister, was forced to step aside following a party funding scandal. Mr Dzurinda, who still formally leads Mrs Radicova’s SDKU-DS party, has been relegated to foreign minister, while Ivan Miklos, the man she defeated in a party primary, is the finance minister. Despite these powerful rivals, she has quickly become the popular face of the new government.
Mrs Radicova’s victory was part of a broader shift to the centre-right across central Europe, as voters shocked by the economic crisis turned to conservative parties to get their countries out of trouble. In Slovakia they returned to the parties that had pushed through radical economic reforms in the late 1990s, turning Slovakia into the fastest-growing country in the EU.
But last year the economy contracted 4.7 per cent, due in large part to the recession in Germany, Slovakia's largest trading partner. The economy is expected to grow 4 per cent this year as Germany revives. “We are in a really deep economic and financial crisis,” Mrs Radicova said, pledging the deficit would be cut to 4.9 per cent of GDP next year and fall below the EU’s 3 per cent maximum by 2013. “The cuts have been the hardest decisions in my life.”
In a symbolic step, 2,600 senior officials, including the president, will have their salaries cut by three times the annual deficit, which this year means a pay reduction of 24 per cent. “Those who are responsible for the deficit will have to pay.”
As part of her return to economic and legal orthodoxy, Mrs Radicova is promising a crackdown on corruption, which had become endemic in Slovakia, especially around large public tenders.
“Corruption is one of the main barriers to foreign investment in Slovakia,” she said. “We will solve the problem very quickly.”