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Slovakia in 2007
by Sharon Fisher

Slovakia's political scene was calm throughout most of 2007, as the three ruling parties that took office in mid-2006 consolidated their power and maintained remarkably high public support, thanks in part to a booming economy. Backing for the largest ruling party, Smer- Social Democracy (Smer-SD), remained at about 40% throughout the year, higher than the combined popularity of the three center-right parliamentary opposition parties, which include the Slovak Democratic and Christian Union (SDKU), Christian Democratic Movement (KDH), and Party of the Hungarian Coalition (SMK).

Prime Minister Robert Fico gained public support through populist promises to undo many of the business-friendly reforms that took effect during the previous cabinet's term in 2002-06. In 2007, Fico launched rhetorical attacks against the foreign owners of Slovakia's energy monopolies, called for major changes to the 2003 labor code, and went after private pension funds, which formed the backbone of the three-pillar system that had been introduced in 2005 to deal with the constraints of an aging population.

In actual policy, however, the government was somewhat restrained. An August study by the Bratislava-based INEKO think tank indicated that of 50 key promises made by the ruling parties, fewer than half were kept during the cabinet's first year in office. For example, amendments to the labor code that took effect in September 2007 were relatively modest, as Smer-SD's two junior coalition partners—the Movement for a Democratic Slovakia (LS-HZDS) and Slovak National Party (SNS)— insisted on a compromise solution, fearing that the original proposals would seriously hinder labor market flexibility and new job creation. Meanwhile, the three opposition parties were largely ineffective in pushing forward their views, although amendments to the pension system that were approved by the parliament in October-November did spark a particularly intense debate. The opposition launched a petition campaign and called for a constitutional amendment that would prevent changes in the future.

After relative calm during the first 10 months of 2007, the most serious coalition crisis to date emerged in November over reports of illegal land transfers involving Agriculture Minister Miroslav Jurena, an LS-HZDS representative. Fico fired Jurena in late November, a move that sparked fears that the LSHZDS would leave the government. The cabinet's collapse, in turn, could have endangered Slovakia's plans to adopt the euro on schedule, in January 2009. Nonetheless, LS-HZDS Chairman Vladimir Meciar emphasized that his party would remain in the government at least through May 2008, when Slovakia will be evaluated for eurozone readiness. The government's stability was confirmed by the parliament's approval of the 2008 state budget bill on 5 December.

The only major leadership change in the six parliamentary parties during 2007 occurred in April, as Bela Bugar, the long-time chairman of the opposition SMK, was defeated by rival Pal Csaky. Observers feared that the SMK's orientation would shift toward a more nationalist approach under Csaky. In reality, relations between Slovaks and Hungarians did become more tense, especially after the Slovak parliament approved a resolution in September on the inviolability of the post-World War II Benes decrees, which stripped ethnic Germans and Hungarians living in Czechoslovakia of their civic and property rights. The SMK was the only parliamentary party to oppose the resolution.

Although quarterly indices published by the Business Alliance of Slovakia (PAS) signaled that the business environment was deteriorating for the first time in eight years during 2007, the economy surged at a record pace. Growth was driven by both domestic and foreign demand, as the country benefited from several new automotive and electronics investments that had entered during the 2002-06 term. External deficits narrowed sharply, while inflation remained well under control. Productivity gains continued to outpace increases in real wages, keeping worries about economic overheating to a minimum. On the downside, Eurostat figures indicated that Slovakia recorded the highest unemployment rates in the entire European Union (EU) during 2007, falling behind Poland. Even so, in line with the situation elsewhere in Central Europe, signs of a labor shortage began to emerge in certain sectors, particularly in construction and certain manufacturing branches.

In regard to further EU integration, Slovakia is scheduled to join the Schengen zone on 21 December 2007, meaning that most of the country's borders will disappear. Moreover, by late 2007, Slovakia appeared set to adopt the euro on schedule, putting it well ahead of most other countries that joined the EU in 2004. Indeed, Slovak inflation by Eurostat's Harmonized Index of Consumer Prices (HICP) standards fell within the Maastricht limit for entry to the eurozone in August 2007 and will most likely remain there through the time when the country's euro adoption readiness is evaluated. There are some risks from a fiscal perspective, particularly since the Fico cabinet seems eager to raise social spending. Moreover, some EU representatives worry about Slovakia's medium-term HICP outlook, particularly after headline inflation in new eurozone member Slovenia rose to 5.1% in October. Still, Slovak government representatives have repeatedly insisted that the country will meet all the Maastricht criteria by the end of 2007.