On Convergence Within the EU

An article by Philippe Maystadt, president of the European Investment Bank, for the Project Syndicate.

Slovak Business Environment Worsens

A September report of ING Slovakia includes this graph and comment on the PAS business environment index: "The strong anti-reform pre-election rhetoric has not been followed up with the reversal of the previous government's reforms. Facing a possible currency crisis after the elections, the new government recommitted itself to the original euro adoption schedule. However, financial markets had assumed the anti-reform stance would not be met with action and the government would keep the status-quo in reforms.
Nevertheless, as time goes by, the government's policy is taking a negative toll on the business environment. And there is no guarantee that this process will not deteriorate further after 2009 euro entry."

New Statistics on GDP per capita in PPS

	% of EU-27	Change
	(2007)	since 2003
Austria	129.4	+0.3
Czech Republic	81.5	+7.7
Slovakia	66.6	+11.3
Hungary	65.7	+2.1
Poland	55.1	+6.0

Source: Eurostat: GDP per capita in PPS

Pension Economics Soon to be Spoken @ eTREND.sk

Juraj Draxler (CEPS Reviser Reseach Fellow), Martin Filko (PhD student at Erasmus University Rotterdam), and Martin Chren (director of F. A. Hayek Foundation Bratislava) will soon commence the Slovak "Economics Forum" with an online debate à la Richard Thaler and Mario Rizzo on the topic of pension economics. Next Monday at the economic weekly TREND's portal.

10 Largest Non-financial CEE Companies

{Rank, Company Name, Country, Sales in 2006, sector}

1. PKN Orlen, Poland, 13.6 bln. EUR, oil processing
2. MOL, Hungary, 11.4 bln. EUR, oil processing
3. Skoda Auto, Czech Republic, 7.4 bln. EUR, automotive
4. Naftogaz Ukrajiny, Ukraine, 6.1 bln. EUR, energy
5. CEZ, Czech Republic, 5.8 bln. EUR, energy
6. Volkswagen Slovakia, Slovakia, 5.2 bln. EUR, automotive
7. Audi Hungaria, Hungary, 4.9 bln. EUR, automotive
8. Nokia, Hungary, 4.8 bln. EUR, technology
9. Telekomunikacja Polska, 4.8 bln. EUR, telecommunications
10. Polskie Sieci Elektroenergetyczne, 4.0 bln. EUR, energy

Source: Deloitte - Central Europe Top 500

A Small Open Economy

Slovakia was the 11th most trade-open economy in the world according World Bank's 2005 available data, with exports and imports valued together at 161.7% of the country's GDP. Only Hong Kong, Malaysia and Belgium were both more populous and more economically open. Other more open countries included mini-states such as Luxembourg, Seychelles or Guyana. According to the most recent numbers (1st half of 2007), the country's exports amounted to 89.0% of GDP, imports 89.6% of GDP. The total trade openness was thus 178.6% of GDP.

Slovak Public Finance at the Entry to the Eurozone

Possessing sound public finances is one of the four Maastricht convergence criteria enshrined in the 1992 Treaty on European Union. By signing their accession treaties, the new member states agreed to meet the Maastricht criteria with derogation. Sound public finance criterion is defined as annual general government deficits of lower than 3% of GDP together with a general government debt lower than 60% of GDP.

The Slovak government’s official target date for entering the Eurozone was set to January 1, 2009, and as such was adopted by the new government led by left-leaning Smer-SD in 2006. The country’s preparedness to enter the monetary union will be assessed by the European Central Bank and the European Commission in spring 2008.

After eight months of 2007, the state’s budget is in black numbers with a surplus of 401.7 million Sk (12 million EUR). Year on year, this is an improvement of 6.1 billion Sk (181 million EUR). On a last twelve months basis, the state budget deficit stayed at -1.7% of GDP. Corporate tax revenues and VAT collection are both showing positive results. Hence, the probability of meeting the 3.0% EMU criterion is regarded as quite high. As a matter of fact, it is estimated at 81% according to a regular survey of economists done by the Institute for Economic and Social Reforms (INEKO).

The 2008 state budget was prepared in August this year by the Ministry of Finance and presented to the cabinet. The deficit should amount to 24.218 billion Sk (721 million EUR; 2.4% of GDP). Medium-term financial framework - the Convergence Program of May 2004 - calculates in addition with a deficit of 1.9% of GDP in 2009. The goal of the program is a structural deficit of 0.9% of GDP by 2010.

Several analysts have expressed the opinion that a record economic growth of the current years allows for a prompter deficit reduction. The public finance is constrained, however, with the costs of a brave pension reform that introduced a second private pillar for pension savings (1.1% of GDP in 2006).

The general government debt of the Slovak Republic amounted to only 30.7% of GDP (503.1 billion Sk; 13.86 billion EUR) in 2006 according to Eurostat, which is a twelve-year low. The number is compatible with the 60% Maastricht requirement, comparable with that of the Czech Republic (30.4%), and considerably lower than that of Hungary (66.0%), Poland (47.8%) or the EU-27 average (61.7%).