By Martin Santa
BRATISLAVA, Nov 1 (Reuters) - Slovakia's centre-right
government approved the 2011 state budget draft last month,
aiming for one of the European Union's largest budget
consolidations. The fiscal deficit would be cut to 4.9 percent
of gross domestic product (GDP).
The ruling coalition of Prime Minister Iveta Radicova holds
only a narrow majority in parliament, but is expected to push
through its ambitious austerity package which includes hikes in
value-added and excise taxes and cuts in government spending
[], later this month.
The euro zone member's unions had objected to the 1.75
billion euro austerity package and staged rare protests in
October, but Radicova's cabinet stood firm []
Clashes over nomination of a new Attorney General over the
past two weeks and approaching tax hikes 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
clashes over policy, including opposition to tax hikes by the
liberal SaS party.
Two deputy ministers from junior coalition parties had been
accused of conflicts of interest and Prime Minister Iveta
Radicova had unsuccessfully demanded their resignation. One of
them, however, resigned in October.
The parliament will elect a new attorney general in
November, but the coalition failed to find a joint candidate and
coalition partners warned the SDKU party of Iveta Radicova
against proceeding without partners' consent.
The SDKU party could endorse the incumbent Dobroslav Trnka,
who is simultaneously backed by the strongest opposition party
SMER of ex-Prime Minister Robert Fico.
What to watch:
-- Worsening rows or dissent. The coalition's thin
parliamentary support, at 79 out of 150 deputies, makes any
disruptions dangerous.
-- Bela Bugar, leader of the junior government party
Most-Hid, said Trnka's re-election thanks to SDKU and SMER votes
could be a violation of a coalition agreement and risks the
government's unity.
-- the SaS faction 'Common People' saysit is uneasy about
the planned hike in the value added tax to 20 percent, up from
19 percent.
-- Communication within the coalition seen as a burning
issue.
UNHAPPY UNIONS, OPPOSITION
The government is facing union resistance against the
approved cuts in public spending, tax hikes and labour code
changes.
Thousands of Slovak union workers marched in the capital
last month to protest against tax rises and the loss of some
exemptions that form part of a 1.75 billion euro budget-cutting
plan, but the government is highly unlikely to step back.
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:
-- Tough fiscal policies, pension system adjustments and
higher taxes could damage the ruling coalition in regional
elections in November.
-- a debate on an amended labour code could deliver more
clashes between employers and unions.
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, drew 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
dissonance, 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
when 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 latest corruption perception
index showed Slovakia ranked 59th-61st place in 2010, being the
worst performer among its 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 Ralph Boulton)
