By Martin Santa
BRATISLAVA, Oct 1 (Reuters) - The centre-right Slovak cabinet backed an
ambitious fiscal consolidation plan in September, which includes hikes in
value-added and excise taxes and cuts in government spending [].
The coalition only holds a narrow majority in parliament, but later this
year is expected to push through the changes as well the 2011 state budget,
designed to slash the fiscal deficit to 4.9 percent of gross domestic product
(GDP).
The euro zone member's unions objected to the 1.75 billion euro austerity
package and are expected to stage rare protests later this month.
Clashes over taxes in the past weeks revealed differences of opinion among
the four government parties, but no major risks to the stability of the cabinet
itself.
Below are key political risks to watch.
SMALL MAJORITY, COALITION SQUABBLES
The coalition, which took power in July, has had several fights over policy,
including opposition to tax hikes by the liberal SaS party, and personnel.
Two deputy ministers from junior coalition parties have been accused of
conflicts of interest, and Prime Minister Iveta Radicova has so far
unsuccessfully demanded their resignation.
What to watch:
-- Worsening rows or dissent. The coalition's thin parliamentary support, at
79 out of 150 deputies, makes any disruptions dangerous.
UNHAPPY UNIONS, OPPOSITION
The government is facing union resistance against the approved cuts in
public spending and tax hikes.
Unions have announced a protest meeting in front of the parliament on Oct.
12, but Radicova has said she will not yield and has put fiscal tightening in
place as outlined.
The opposition, led by the leftist ex-Prime Minister Robert Fico, accused
the government of loading pensioners with additional taxes and triggering a rise
in consumer prices.
What to watch:
-- Attendance at union protests, which traditionally attract few people,
with the government blaming unions for bearing part of the responsibility for
the poor state of public finances.
-- Tough fiscal policies, pension system adjustments and higher taxes could
damage the ruling coalition in regional elections in November.
EU RIFT OVER GREEK AID
Slovakia's decision to torpedo a 816-million-euro bilateral loan to Greece,
part of the euro zone's 110 billion euro aid package, sparked harsh criticism
from Brussels and its European Union fellows, raising the threat Bratislava
could face some kind of political isolation in the future [].
Several EU officials said privately that Slovaks could be snubbed by some of
the 26 other EU member states because their decision is likely to complicate
talks on the bloc's budget, making the rich net payers less willing to grant aid
to poorer countries [].
What to watch:
-- Coming months will show the impact, if any, from Bratislava's 'no' to the
Greek loan, a violation of what European politicians see as the principle of
solidarity.
SLOVAK-HUNGARY RELATIONS
The central European neighbours have a history of clashes, with Hungary
accusing the Slovaks of oppressing its ethnic kin and Bratislava bristling at
former imperial master Budapest's efforts to promote Hungarian culture in
Slovakia.
Radicova's coalition includes the Most-Hid party of mostly ethnic-Hungarians
who are seen as a moderating influence on the fractious relationship between
Bratislava and Budapest.
Relations between the two former communist states worsened after the
previous prime minister Fico brought the rightist Slovak Nationalists, known for
harsh rhetoric against minorities, into his coalition following elections in
2006.
What to watch:
-- Radicova's cabinet on Sept. 24 softened a law that stipulated that only
the Slovak language could be used in public by saying it only applied to public
offices and by halving the fine []. The parliament is expected to
adopt the law in the coming weeks.
-- Bratislava also plans to amend a law which strips citizens of their
Slovak nationality if they take the citizenship of another country.
CORRUPTION, BUSINESS CLIMATE
The government wants to improve the business climate, crack down on
corruption and boost law enforcement -- major concerns for investors under the
previous leftist cabinet.
Transparency International's corruption perception index showed Slovakia
fell to 56th place in 2009, down from 52nd the previous year, worse than Central
European neighbours Poland, Hungary and the Czech Republic.
What to watch:
-- Radicova's administration has pledged to increase the transparency of
public procurement projects, publish government tenders on the Internet and
enhance the functioning of the courts to reduce delays.
-- The government also plans to ease labour market regulation, boost market
flexibility to increase employment and lure new foreign direct investments.
(Reporting by Martin Santa, Editing by Sonya Hepinstall)
