YEARENDER: Slovakia seals its new image with euro switch

Dec 22, 2008, 17:46 GMT

Bratislava - A decade after Slovakia set out to abandon its reputation of a thuggish post-communist backwater the country is only weeks away from crowning its new image of central Europe's economic tiger.

Slovakia is making the last preparations to switch to the euro on January 1 in a feat for the country of 5 million whose recent history serves as a blueprint for economic success.

But Slovakia's story is one of a laggard who turned around at the last minute. After Bratislava and Prague peacefully split in 1993, the ex-communist country was steered into isolation under authoritarian rule of former premier Vladimir Meciar.

It lagged behind its transitioning neighbours, Hungary, Poland and the Czech Republic, who were making strides towards joining NATO and the European Union.

Meciar was ousted after the 1998 general election and the new center-right government set out to bring the country to the EU as well as to boost its weak economy.

The pro-market government of former premier Mikulas Dzurinda introduced a flat tax and overhauled country's pension, welfare and healthcare systems.

'It was necessary to change the image of the country. The demand for reforms was often also driven by that,' country's central bank Governor Ivan Sramko said at a recent economic conference. 'To make the change one needs to make news.'

The bold economic reforms were lauded abroad and the country caught up with the rest of the ex-Soviet central Europe, entering NATO and the EU in 2004.

However, the belt-tightening measures proved unpopular at home. Voters threw their support behind leftist opposition leader Robert Fico in the general election two years ago, sending jitters through country's business community.

Premier Fico has since abandoned some of the reforms, such as direct fees in healthcare, and has picked fights over some others.

But he did not block country's road to Europe's common currency, on which it set out in 2003. 'From the onset there was consensus on the Slovak political scene,' Sramko said.

At that time, Slovakia's living standards, consumer prices and productivity lagged well below the EU average and the country was meeting none but one of the so-called Maastricht criteria, the EU's economic requirements for the switch.

Five years later, in May 2008, the European Commission and European Central Bank gave Bratislava a green light to join the 15 nations using the euro at the start of 2009.

The switch, however, is due to take place at a time when eurozone's economy is tanking and the bloc's monetary policy would benefit slumping Western Europe rather than Slovakia, which still posted a solid growth of 7 per cent in the third quarter.

Sramko remains upbeat. He dismissed fears that country's economy would hurt after giving up its own monetary policy at such tumultuous times.

'The influence of the monetary policy is significantly reduced' during such turmoils, he said.

Although the joy over the country's progression to the euro zone may be shortlived as the global financial crisis continues to engulf economies across the world, Bratislava will be popping champagne on New Years Eve.