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Archive for October, 2011

I was originally planning to have my next post about something else but because of the recent day events I decided to write quickly about an important current event. This post is quite long so if you want to skip to the point just scroll down towards the end.

In the recent days, Slovakia, the place I proudly call home, became world famous. This didn’t happen in a positive way however. We did not win the World Cup or anything.

Media from all over the world reported on how Slovakia is the only country in the Eurozone (countries within the European Union (EU for short) that use the Euro currency) that has not yet approved the European bailout mechanism or the European Financial Stability Facility (EFSF, for short).

Now thanks to this vote the ruling government in Slovakia actually fell.

My point in this post is to show that indirectly, in a way, this is also the fault of the EU Bureaucracy in Brussels. I’m a little upset because some things could have been done better and more effectively by more simple reasoning. Also I think that the fall of this government is not good news for Slovakia at all.

Although the foreign media did indeed mention the inner politics in Slovakia and how one of the government coalition parties (SaS) is refusing to approve the bailout fund because Slovakia is relatively poor, none really mentioned the fact that Slovakia will have to contribute the 2nd biggest portion of its GDP. In short it will have to carry the biggest burden. This the whole time is the reason why the vote is being delayed in the first place.

This isn’t about money but about proportion. Even though Slovakia will have to contribute only something about 2 % and probably the smallest amount of money to the EFSF, it will have to contribute the biggest portion of our GDP.

I’m not even going to get into the fact that Slovakia worked very hard to be able to accept the Euro currency and we still have the lowest average wage in all of the Eurozone and we would thus have to be more in debt just to save a country like Greece that did irresponsible fiscal and economic policies.

The other fact I’m not going to get into is that this whole plan of bailing out Greece multiple times cannot possibly work and Greece will default eventually. Two of the recent plans to save Greece are practically organized defaults. So Slovaks would actually be contributing our money to saving something that would eventually fail anyway.

I’m surprised that no one really reported that Slovakia (the poorest Eurozone member) would contribute the most as percentage of the GDP. This does not make sense to me.

Why should the poorest of the countries carry the biggest burden?

Back in 2009 Ireland was given an exception in the EU when it wanted it first failed to adopt the Lisbon treaty. Many countries in the EU such as UK and Sweden also have exceptions of various kinds.

Why didn’t Europe even consider doing some sort of a compromise with Slovakia? Seriously? I’m not a euro-skeptic nor do I want my country or my government to seem to be euro-skeptic, but there could have been ways to do an efficient compromise.

I want Slovakia to contribute to the Euro Bailout Fund because, again, I’m not a euro-skeptic. But the portion of Slovakia’s GDP in contributing could have been smaller. I know that mathematically and economically it would have been inefficient to have every single of the 17 countries to contribute the same percentage of GDP.

But, again, why should the poorest ones pay the biggest portion of the GDP and thus carry the biggest burden? Estonia is probably just as poor (or just as rich, depending on your point of view) as Slovakia. The average wage in Estonia is 786 Euros, in Slovakia it is 762. Yet it contributes the same part of the GDP as Slovakia does. Approximately 13%. Slovakia will have to contribute 11%. Economies like France and Germany where the average wage is over 2000 Euros would only contribute 8% of their GDP.

I’m not against the bail-out completely. I think that countries like Portugal, Spain, Italy  and Ireland will be fine eventually and helping some of them with the bailout mechanism would actually work. But even with that in mind I think, Slovakia and other poorer Eurozone countries (Estonia, Slovenia or Malta) would have deserved to contribute less.

Neither am I saying that the other 16 countries in the Eurozone that adopted the EFSF are stupid. I’m not trying to make a point that only Slovakia should have been offered a compromise or a specific deal. Every country which had problems with the EFSF should have been offered an alternative.

Here is my point: The EU could have tried to understand more in detail why Slovakia is so stubborn to adopt the bailout fund. It could have tried to give Slovakia a compromise or a kind of an exception. It did it for Ireland and other countries.

The answer to rescuing economies in debt is not by indebting the other poor and less competitive economies which are doing still pretty good.

A very reasonable, effective and simple plan would have made us guarantee  a smaller portion of our GDP to the EFSF and this sum could have been shared by bigger economies for whom it would have been only a fraction of their GDP. There, this simple.

Slovakia probably would have accepted it right away.

But no such incentive ever came from Brussels. (If it came and I actually missed it, then please send me links, because I don’t want to seem like a demagogue).

On the other hand, why didn’t our government ask for some concessions from the EU or the other Eurozone Countries? Here I do criticise Ms. Radičová for not asking for anything from the EU. (If she did then I actually missed it.)

I definitely don’t think that the SaS party back in Slovakia did the right thing. It is the direct cause of the government’s fall, but it is actually right. Slovakia shouldn’t carry the bigget burden to save an irresponsible Greece when it has its own problems currently in health care with insufficient doctors.

Now because of the problems with voting for or not of the EFSF Slovakia’s government fell. Not just any government. A good “pro-market oriented” government fell. First of all I think our (now ex-) Prime Minister Iveta Radičová did a mistake in threatening to resign and in joining this vote with the vote of confidence in the parliament.

It is clear that Mr. Fico (the leader of the main opposition party) was working his own agenda and interests and was thus clearly not euro-oriented. He explicitly said that he would not vote for the EFSF to let the current government fall but would vote for it later and ask for early elections.

Anyone from Brussels who had looked at the issue just  a little bit closer would have immediately realized it.

Why didn’t Mr. Barroso, head of the European Commission send any messages to Mr. Fico? Why did he let a government fail? He only pressured the Slovak government to adopt the EFSF. Only the European Socialists Party were pressuring Mr. Fico to accept the European Bailout Fund.

Had Mr. Fico been pressured more, the EFSF would have passed and Slovakia would still have a working progressive government. Again, just that simple.

If Mr. Fico really is a pro-european politician then he would have voted for the bailout fund anyway and would not have just been attempting to make a government fail.  Now of course he is going to vote for it so that he does not seem anti-european or euro-skeptic.  Can’t anyone in Brussels or in the EU Commission see what he is doing? It was pretty obvious.

I do not want to seem anti-Fico here or be too partisan, because Ms. Radičova’s party back in the day in 2008 did something similar when  it was blocking the passage of the Lisbon Treaty. That wasn’t right either.

I do think that Slovakia could just got on with the EFSF, and the life would go on, but I think it is a mistake still.

By not trying to give any alternative to Slovakia, the EU actually, although, indirectly caused a government to fall.

My biggest fear is that Mr. Fico’s new government (he will most likely win the new early elections) will be as bad as it was in the years of 2006-2010. I hope I’m wrong and again everyone deserves another chance. I fear of renewed non-transparency in government, renewed excessive public spending and nationalistic rhetoric.

Finally, I also think that the way everyone in the EU expected Slovakia to vote was close to ridiculous. They actually expect Slovakia to vote again and again until they say yes? So in short all the “NO”-s don’t count but one “YES” will? This is absurd and I dare say “close to undemocratic”. I am sure that the coalition parties in Slovakia met and tried to reach an agreement or a compromise before each vote.

But how can the EU just expect a national parliament to change its mind if it doesn’t offer anything in exchange?

If the EU is to be a success and I wish for it to be a great one, it cannot just ignore small countries’ realities. Nor am I saying that no country should ever make sacrifices but the ones that are being asked from Slovakia are economically too big and yet easily manageable. In a way I think that this is also a failure of common sense.

The EU Bureaucracy should also consider the dangers of falling governments and should try to study the country’s needs and troubles more in detail. The EU should also watch out for populists who are just viewing their own interests.

Again, I’m not anti-european nor a euro-skeptic. I’m not against the EFSF as a whole either. I’m just upset about how things in the EU are being done and my home country has to suffer from it.

In summary these are the issues I have a problem with:

  • The EU did not offer any alternative or concession or compromise to Slovakia and it should have
  • Nobody from the EU really pressured the other Slovak parties to accept the EFSF
  • The poorest and least competitive economies have to carry the biggest burden which goes totally against the common sense
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