TCS Daily

The Slovak Tiger

By Einar Du Rietz - June 24, 2004 12:00 AM

From problematic baby brother in a fringe region to tax haven and industrial centre, the small Slovak republic has come a long way, but at least it's on the right track. It's been called the Detroit of Europe, even though the Hong Kong of Europe might be more appropriate. Recently Deutsche Welle labeled Slovakia "A Monaco on the Danube". Even more importantly, it's not out of the question that soon we will hear about the Slovakias of Africa or South America.

Ask anyone who's been traveling in Central Europe to name the first thing that comes to mind when they think about the Slovak Republic. The most likely answer you will get is a baby brother complex. True, a hiker might think of the Tatra Mountains, and anyone with a broader historical perspective might mention the Bratislava cathedral and the fact that for a period the Habsburgs used to be crowned there. But it's still there, this feeling of inferiority. Or is it? Recent facts at least seem to show there is no reason for it, and rightly so. As a matter of fact, Slovakia seems to be the new leading tiger in the European Union.

With a flat rate of 19 percent, Slovakia leads the European low tax competition, something that naturally infuriates socialists in the rest of the union, but makes foreign investors laugh all the way to the bank. Recently, south Korean car and appliance maker Hyundai chose Slovakia for a giant car manufacturing plant, joining earlier carmakers such as Volkswagen and Porsche and instantly giving the country the nickname the Detroit of Europe.

In earlier times, Slovakia was the center for heavy industry, and especially arms, in the intriguing construction known as Czechoslovakia. But Bohemia and Moravia were always the richer (if this can be said about a communist tyranny) part of the country. So when the strong man of the Slovak part of the coalition, Vladimir Meciar, started boasting about national independence, no one in Prague believed him. Memories spring to mind of an event at the castle in Prague, exactly one year after the Velvet Revolution in 1989. President Havel was desperate to keep the country together and his aristocratic chief of staff, Prince Karel von Schwarzenberg (also bearing the title of The Illuminated) took a long puff on his pipe and dismissed the idea as ridiculous. "They will never leave".

But Prime Minister Vaclav Klaus thought otherwise, and in spite of efforts from Havel, the peaceful separation was a fact soon later.

Then there was the issue of currency. For about a year, Slovaks used the old bills with a special stamp on them, before introducing their own Korono. The new currency was pegged to the Czech one, which in turn was pegged to the deutschmark.

Foreign investors were reluctant to make the move to Slovakia for a long time, basically for one major reason: the insecurity created by the ill-tempered Meciar. After his first defeat however, the other parties decided to create a broad coalition, at the time called "professional government", determined to brush away Slovakia's reputation as chauvinistic and unreliable.

They had good advisors from the start, actually before Meciar's first fall. Among others, Tim Evans and Sean Gabb from the UK, and American economist Thomas Grey took time to help the newly liberated country. Evans, today president of the Center for the New Europe in Brussels, recently revisited Slovakia and came back most enthusiastic. Says Evans: "The Slovak economy is doing well. Growth is well over 4 percent and unemployment is coming down steadily. Whilst the traditional liberal centers such as Bratislava are doing very well, wealth creation is also clearly permeating the villages and rural areas. With its low flat tax and booming manufacturing and service sectors, Slovakia is justified in its reputation of being the new Hong Kong of Europe."

Meciar remained a threat for a long time, but after he lost the race for president (a largely ceremonial post) this spring, the last obstacle was removed. Now Slovakia has joined the European Union and in its first elections to the European Parliament on June 13, just 17 percent of eligible voters participated. People might complain about a democratic deficit, but think about it. Short lines at the voting booth usually go hand in hand with a feeling among the public that there are more important things than politics, and that government should not mess too much with peoples' lives or the economy.

Nothing wrong with that at all.


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