By Martin Santa and Michael Winfrey
BRATISLAVA, June 13 (Reuters) - A group of four Slovak
centre-right opposition parties began talks to create a ruling
coalition on Sunday to replace leftist Prime Minister Robert
Fico after they won a majority in a parliamentary election.
Slovakia has one of the lowest public debt burdens in the
euro zone, at 35.7 percent of gross domestic product, but that
is seen rising fast unless the next government reins in spending
and revamps welfare.
The poorest euro area member needs to slash the fiscal
deficit, implement new market and system reforms to cope with
ageing population, jobless rate at 12.25 near its five-year
high, crack down on corruption and boost law enforcement.
Two of the four parties that now look set to rule have also
said they would refuse to pay Slovakia's 800-million-euro share
of the EU bailout for Greece.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For full coverage, click on []
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The following are key political risks investors may face in
the central European country of 5.4 million people:
COALITION SCENARIOS
A centre-right coalition:
- Seen as the most probable result, it would include Slovak
Democratic and Christian Union (SDKU), Freedom and Solidarity
(SaS), the Christian Democrats (KDH), and the ethnic Hungarian
party Most-Hid, all centre-right parties.
- This cabinet would be seen as business-friendly in
contrast to Fico's current cabinet, which has squeezed big
companies and foreign investors in favour of worker protection,
and more positive for public finances than Fico's coalition.
- The decision-making process might be difficult due to the
number of parties and bickering in the past.
Similar coalitions ruled from 1998 until 2006, but frequent
infighting led to defections by some ruling party deputies, and
a departure by the Christian Democrats in 2006 toppled an
SDKU-led government and led to early elections.
- May be better equipped to fight corruption although the
main parties were accused of graft in previous governments.
Transparency International's corruption perception index
showed Slovakia fell to 56th place in 2009, down from 52nd the
previous year, the worst performance among its Central European
neighbours Poland, Hungary and the Czech Republic.
PM Fico stays in power:
- Fico's left-wing SMER party won the most votes and 62 of
parliament's 150 seats, but its ruling Slovak National Party
partners won only nine seats and the centrist HZDS party did not
cross the threshold to stay in parliament.
- President Ivan Gasparovic said he would tap Fico for a
first chance to form a government, as is tradition.
Fico said on Sunday he wanted to create a two-party
coalition and could potentially try to lure one of the four
opposition parties over to his side with generous offers of
ministries, but the four parties have all rejected cooperating
with him and analysts say this scenario is very unlikely.
- It would not be welcomed by employers, who complain that
Fico's government has caused a deterioration in business
climate, accompanied by higher level of a perceived corruption.
FISCAL CONSOLIDATION
- Slovakia, a euro area member since 2009, has pledged to
cut its fiscal deficit -- which jumped to 6.8 percent of gross
domestic product last year -- to 5.5 percent this year and to
the EU-prescribed level of 3 percent by 2012.
Economists say the centre-right majority makes this outcome
more likely. SDKU has not outlined a specific consolidation plan
but its potential ruling partner SaS has said it wants to
balance the budget by 2014.
- The centre-right parties aim to cut the fiscal shortfall
by cutting spending and reducing waste but have pledged not to
change Slovakia's flat 19 percent income and corporate tax.
- Substantial changes of the state-run pay-as-you go pension
system, taxes, and adjusting social and healthcare transfer
systems needed to prevent the fiscal gap from jumping to 7.4
percent/GDP this year, a study of analysts has shown.
- Slovakia's economy seen as the fastest growing in the EU
in 2010, but growth is mainly export-driven and many of the
companies are foreign owned, so they bring in little budget
revenue.
GREECE LOAN
- With living standards at just 72 percent of the EU
average, a majority of Slovaks disagree with contributing to
bailouts for richer euro zone states such as Greece, polls show.
- SDKU and SaS have threatened to refuse to pay Bratislava's
800 million euro contribution to Athens' 110 billion euro
bailout agreed by EU states, although some analysts say
diplomacy may prevail and the Slovaks could back down.
- While a Slovak rejection could not stop the bailout, which
has already won parliamentary support from euro zone stalwarts
France and Germany, a refusal would hurt solidarity in the bloc
and could have negative implications for any need for future
cooperation in case another member needs aid.
SLOVAK-HUNGARY RELATIONS
- The two nations have had rocky relations for centuries.
- There was hope that both countries' EU entry in 2004 would
smooth relations, but instead they have eroded to the point that
analysts feared violence could erupt.
- The election result is expected to ease tensions. The
Nationalist Party has no chance to stay in power and the next
cabinet looks set to include Most-Hid, a party that represents
many people in Slovakia's 10 percent Hungarian minority.
