European Affairs

Summer 2000

 

Slovakia Wants to Be a Full Partner in Europe
by Pavol Hamzik

Now that the European Union has opened negotiations with all the applicant countries from Central and Eastern Europe, Slovakia has a chance to catch up with those that started negotiating earlier, and to enter the EU as one of the first new members. The government has set a target date of January 1, 2004, for getting the country ready for EU membership, although we do not necessarily expect to enter on that date, and is pressing ahead with preparations for joining the North Atlantic Treaty Organization.

The government's action plan for EU entry is based on assessments by the European Commission, which has concluded that Slovakia now fulfills the political criteria for membership, and has set out on the road to a functioning market economy.

The Commission has reported favorably on the way Slovakia is coordinating its preparations for membership with the EU authorities and on the progress it has made in aligning its legislation with that of the EU's internal market.

At the same time, the government is aware of inadequacies that need to be corrected. The Commission's latest report, in October 1999, warned of the need to increase administrative capacity and to pay greater attention to environmental problems.

Even though Slovakia is on the way to a market economy, the fulfillment of the EU's economic criteria will be the most complicated and painful task. Reforms, however, are unavoidable. If we do not revitalize and modernize our economy so that it can survive under difficult conditions, our integration efforts will simply be empty visions.

Our principal tasks are to restore economic balance, to restructure the economy, including the financial and banking sector, and to assure that privatization is transparent.

Most of our problems are either due to the structure of the economy and the system of public finance or have been inherited from the previous government. Capital has not been available for structural changes, and there has been no social consensus in favor of reforming public finance. The main causes of the capital shortage are the non-transparent and ineffective privatization process and the associated low levels of foreign investment.

For three consecutive years, we spent 80 billion crowns more in the state budget than we could afford. The result of this is that we must pay 25 billion crowns in interest payments alone this year. We could halt this trend only by lowering the fiscal deficit, deregulating prices, curbing expenditure, or raising taxes.

With two packages of unpopular measures, we have achieved results that have been received positively, mainly abroad. The European Commission, the International Monetary Fund, the World Bank, and the OECD have welcomed our measures. The current account and trade deficits have been reduced, dramatically lowering interest rates this year, and the crown has strengthened.

Without this stabilization, we would not have been invited into the group of candidate countries that are now conducting intensive accession negotiations with the EU. But to make our stabilization sustainable in the long term, we must boost economic growth by revitalizing the business climate. This will involve the introduction of effective laws, the enforcement of those laws, and tough budget restrictions that will oblige businesses to improve performance and reduce expenses.

We must restructure the finances of our banks and businesses, and improve our regional policy. Continued restructuring of commercial banks owned by the state, which began last year, will be necessary to revitalize banking and financial services. We have already seen the first results. By the end of last year, for example, the foreign exchange reserves of the National Bank of Slovakia reached a level internationally regarded as being safe for currency stability. Official reserves currently cover approximately 3.3 months of projected imports of goods and services.

According to ING Barings, if the government takes sufficiently vigorous measures in the privatization process this year, and if the trust of foreign investors is maintained, the crown will strengthen further. Government support for the privatization of state firms has contributed to the strengthening of the currency, according to financial analysts.

Just as the financial restructuring of business depends on the revitalization of the banking sector, the revitalization of the banking sector depends on the financial restructuring of business. The success of both will depend especially on the reduction of risks.

Among the most serious risks are possible complications arising from insufficient generation of income and the implications of growing unemployment. As the level of these risks varies greatly among regions, their amelioration demands an effective regional policy. We must reduce social tensions, improve the functioning of regional job markets and take regional considerations into account as businesses are restructured.

This means that the success of the financial restructuring of business will greatly depend on the participation of regional authorities in the process, especially in regions with low economic output and high unemployment. I have in mind primarily northeastern Slovakia, and the regions of Gemer, Kysuce and Orava; that is, nearly one-quarter of the country.

This year will provide an opportunity for Slovakia to lay down real foundations for a new quality of economic development. We must establish a social consensus on the division of responsibilities between state and local government bodies, on reforms to the public finance system, and on the definition of national economic priorities, extending over several elections.

It goes without saying that early entry into the EU is both in the country's national interests, and in accord with the wishes of our citizens. It is, however, only a part of our larger effort to contribute to and participate in the construction of a new European architecture.

EU membership offers us the opportunity to influence the development of the EU from within and to share in decisions on Europe's political, economic and security institutions. The process of European integration has advanced far enough to make it clear that a return to a system based on the pursuit of prosperity and security solely on a national level is unlikely and undesirable.

We firmly believe that our future lies in joining the market mechanisms of Europe and in helping to shape Europe's security and defense identity. Nearly 70 percent of Slovak citizens support integration into the EU and are prepared for the short-term sacrifices needed to bring our economy into compliance with EU rules.

The economic integration of Slovakia into the EU, however, is a necessary but not a sufficient step in pursuit of our interests and values. If we share in the benefits of the free markets of Europe we should also be prepared to share the military responsibilities of the Alliance. We believe that our plans for EU accession must parallel our plans for integration into NATO.

This is far from a new idea. It is the reason that the 19 NATO allies agreed unanimously during the Washington Summit last April to identify Slovakia among others as a potential candidate for invitation to join the Alliance at the next summit meeting in 2001-2002.

Indeed the process of integration is already underway. Slovakia now shares borders with three NATO countries (the Czech Republic, Poland and Hungary), and with one EU country (Austria). Our shortest border is with Ukraine, the independence of which plays a key role in the security of Central and Eastern Europe.

Developments to our South and East have confronted us with new security challenges - international crime, illegal immigration, and crimes against humanity - which cannot be addressed by states acting separately or in isolation. They must be addressed comprehensively, and in close cooperation with allies. In our view, the only Euro-Atlantic institution capable of responding to these challenges and directing our security operations is NATO. And within NATO, the leadership and commitment of the United States is key.

During the war in Kosovo, Slovakia joined NATO's side and shouldered its share of the military burden. We opened our airspace to NATO operations, provided critical intelligence and interdicted military supplies intended for Milosevic's paramilitary forces. These actions were politically difficult. Not all the country's citizens understood why we were joining an operation where Slovak security was not immediately threatened.

Although the number of Slovak citizens supporting NATO accession fell rapidly during the war, attitudes have now stabilized and nearly 40 percent of citizens support entry into the Alliance. We have embarked on a campaign to educate the public about the Alliance, the advantages and drawbacks of membership, the preparation of the Slovak army for NATO entry and similar issues, so as to increase public support for membership.