Slovakia and the financial crisis

Slovak Foreign Policy Association
Slovakia experienced considerable economic growth in 2008 and first estimations did not expect very considerable influence of financial crisis on our financial sector. Generally, banks owned by foreign investors (mainly Austrian and Italian) in Slovakia are very conservative and considered as healthy but Prime Minister Fico promised Slovakia’s citizens that the government would pay attention to any possible outflow of capital from Slovakia to a troubled mother bank[1]. Another factor that brought comparable stability to Slovakia’s financial sector was the finalisation of Eurozone entry. In comparison with the weakening Czech, Hungarian, and Polish currencies, the Slovak Koruna in the latter half of 2008 recorded a stable rate vis-à-vis the Euro. As the National Bank governor expressed in an interview that – the Euro is already protecting our stability.[2] The National Bank analysis from December 2008 noted that the influence of the financial crisis was in decreasing profits mainly in insurance companies and in a reduction of the sector’s activities. Clients’ revenues are more vulnerable and banks are expected to cut back in offering credit but financial institutions in Slovakia are stable. Banks’ earnings from the beginning of 2008 actually rose by 10 percent.[3] Unlimited deposit guarantee was introduced in Slovakia immediately after the proposal by the European Commission. Several possibilities were discussed as alternatives to unlimited deposit guarantee, but the overpowering explanation for the unlimited deposit guarantee was a similar reaction of other EU countries and thus an attempt at sustaining Slovakia’s competitive edge.[4]
The Ministry of Finance of the Slovak Republic counted during state budget preparations in the fall of 2008 with a prognosis of economic growth at 6.5 percent in 2009 but with the appearing impact of crisis, especially in car industry, its predicted growth was cut down to 4.5 percent in November 2008. In January 2009 the European Commission published new prognosis of GDP growth in Slovakia at 2.7 percent and the Finance Ministry after some previous reservations changed its prognosis to 2.4 percent and National Bank awaits even less growth of 2.1 percent.[5] Though the Commission considers Slovakia’s growth still the fastest in the EU, domestic bank analysts await further cut down in growth rate prognosis.[6] The prognosis done by the economic think tank, “INEKO” from expert surveys suggest not less than 1.4 percent.[7] Slovakia planned to continue reducing the budget deficit[8] but the worsening growth prognosis and the rise in unemployment that brings increase of state expenditures, spells some difficulties with future commitment to sound fiscal policy.
More serious are indirect impacts of the financial crisis on the Slovak economy. The government has been monitoring the situation but the growth in unemployment occurred only lately. Government expectations in addressing this issue are mainly focused on a support from the European Globalisation Adjustment Fund and possibilities to spend early structural funds allocated for later periods. Slovakia’s plan to manage the impact of the crisis includes investing into infrastructure, especially motorways within public-private partnership schemes and therefore, the government has been negotiating cooperation with the “European Investment Bank” and the “European Bank for Reconstruction and Development”.
In terms of a public discussion of the main long-term implications of the current economic and political situation, Slovakia’s politicians have been keen to emphasise the importance of the EU-rules, especially in the area of competition policy and with respect to the Maastricht criteria.

[1] Government Office: “Tlačová konferencia po skončení 113. (mimoriadnej schôdze) vlády SR”, 20 September 2008.

[2] SITA: “Šramko: Euro už tlmí dopad krízy na Slovensku”, 26 January 2009.

[3] SME: “NBS: Finančná kríza sa už jednoznačne prejavila”, 16 December 2008.

[4] SME: “Garancia sú na papieri. Banky sú zdravé”, 9 January 2009.

[5] The precise analysis by the National Bank will be available in March 2009.

[6] Webnoviny: “MF znížilo odhad tohtoročného rastu na 2,4 %, uviedol Počiatek“, 4 February 2009.

[7] ETrend: “Ekonómovia: Rast HDP spomalí na 1,4%”, 4 February 2009.

[8] Aktuá “Fico: Výsledky summitu sú pre Slovensko úspechom”, 12 December 2008.