Sign of success: Slovakia to adopt euro

Stephen Beard Dec 16, 2008

Sign of success: Slovakia to adopt euro

Stephen Beard Dec 16, 2008


TESS VIGELAND: Yesterday we brought you a story about Hungary’s woes as part of the fallout from the financial crisis. It’s had to be bailed out by the IMF and, in turn, is bailing out its banking system.

Today we look at a success story from the same region: Slovakia.

In three weeks, the country joins the inner circle of European states and adopts the euro. Slovakia was once considered the Czech Republic’s poor relation. The former communist country that was least likely to succeed.

From the Slovak capital Bratislava, Stephen Beard reports.

STEPHEN BEARD: Getting off the train at Bratislava is a letdown. The station is drab and dirty. The city seems dull, even backward. Nothing like the glorious Czech capital, Prague. But when it comes to the economy, it’s a different matter.

PETER KICINA: Slovakia was reformed some years ago. We have excellent tax system, and quite good macro-economic stability.

Peter Kicina, a spokesman for Slovakian industry, says the budget deficit, national debt and inflation are all under control. That’s why Slovakia has been invited to adopt the euro.

[Sound of TV ad.]

As this TV ad reminds viewers, in three weeks Slovakia becomes the 16th member of the eurozone.

Euro membership is a badge of success. It shows how far this country has come since the end of communism, and since Slovakia separated from the Czech Republic in 1993. That led to the collapse of many heavy industries here. Unemployment hit 20 percent.

Analyst Radovan Durana says the country was finally shaken out of its torpor.

Radovan Durana: The Slovak economy recorded a slowdown which woke up the people in the country. And now they understand that it’s up to them what’s happening in the country.

Slovakia cut its taxes, privatized state-run companies, made it easier to hire and fire workers, and attracted more than $18 billion worth of foreign investment.

[Sound of car plant] Volkswagen built this state-of-the-art car plant just outside the capital. Peugeot and Kia are here too. This country is now a major auto, and machinery and steel manufacturer.

Financial journalist Anca Dragu says Slovakia is in better shape than most of the Western economies it’s been emulating.

ANCA DRAGU: Banking system is solid. And there are no defaults on mortgages like you see in other countries.

America inspired the country’s free-market reforms. But, says Anca, Slovakians haven’t followed the example of many Americans — digging themselves into debt.

DRAGU: While in the USA people get in their mail the offers of, I don’t know, 10 or 12 credit cards, and they use one credit card to cover the other one. While in Slovakia they receive from the bank a credit card and people return it to the bank because they don’t want to use a credit card. So people are very keen on controlling their finances and not getting into debt.

It’s hardly surprising that such a paragon of economic virtue qualified easily to join the eurozone. Impending membership has helped the country weather the global financial storm. The might of the European central bank has protected the Slovakian currency from speculators.

But some Slovaks still have doubts about adopting the euro.

[Sound of open-air market] In this open-air vegetable market, some of the shoppers are worried about the downside.

This man says prices will go up, it could make the economic crisis even worse. Others complain about loss of sovereignty only a decade-and-a-half after the country gained independence.

Analyst Radovan Durana says Slovakia will lose control over its economy.

DURANA: When they set the interest rate in Frankfurt, they will be more interested [in] what’s happening in France and Germany rather than a small country like Slovakia.

Nevertheless, living in a small country on the edge of Europe with the global downturn gathering pace, most Slovaks feel they’ll be better off inside the eurozone.

In Bratislava, this is Stephen Beard for Marketplace.

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