wiiw Opinion Corner: Slovak and Slovene reservations against the Greek bailout

08 June 2015

wiiw experts Hermine Vidovic and Doris Hanzl-Weiss assess the reasons for the countries’ dissatisfaction with the negotiations between the EU and Greece. What are their concerns?

Doris Hanzl-Weiss: Indeed, Slovakia’s Prime Minister Robert Fico made contradictory statements about the latest Greek bailout at the beginning of this year. On the one hand, he took a fierce stance against cutting Greek debts, while on the other hand, he said that Slovakia would go along with European actions. However, this is not the first time Slovak politicians have expressed reservations against bailing out Greece. There have been controversies in the past which contributed to the collapse of the Slovak government in October 2011. The shared cross-party concern has been that “poor Slovakia should not pay for the richer countries”. While this statement reflected the facts at the beginning of 2010s, it no longer does. But let me explain this in the context of the sequence of events.

In 2010, when problems in Greece became visible and bailout was discussed, the first critical voices were heard in Slovakia. After the elections in June 2010, a new four-party right-wing coalition government came to power under Prime Minister Iveta Radičová. As directed by the government, the new Slovak parliament refused to contribute EUR 816 million to the EUR 110 billion Greek rescue loan on 12 August 2010. Showing fiscal prudency themselves, the Slovak policy-makers saw no reason to demonstrate solidarity with fiscally irresponsible partners. In addition, they referred to the fact that Slovakia was the poorest country in the eurozone. At that time Slovakia’s GDP per capita (at PPPs) stood at about 74% of the EU-average, the Greek one at 87%. However, the Slovak parliament voted in favour of the establishment of a temporary bailout fund, the European Financial Stability Facility (EFSF), with Slovakia’s contingent commitment set at EUR 4.4 billion.

By mid-2011, differences inside the Slovakian ruling coalition had intensified. Within the four-party coalition government, it was the second largest coalition partner, the liberal Freedom and Solidarity party (SaS), with its party leader Richard Sulik, which was strictly against a second Greece bailout loan and advocated a Greek loan default. He again stressed that Slovakia was the second poorest country in the eurozone – now after Estonia, which had entered the eurozone at the beginning of 2011. In order to have more time to settle these differences, Slovakia decided to vote as the last of the Eurozone countries on the expansion of the EFSF. Ultimately, Prime Minister Iveta Radičová linked the vote over the expansion of the EFSF to a no-confidence vote. However, SaS refused to back the changes to the EU bailout mechanism and Radičová’s government fell on October 11, 2011. The expansion of the EFSF was nevertheless approved on October 13 with the support of the opposition-party Smer on the condition of early elections to be held on March 10, 2012. In this election, the pro-European left-wing party, Smer (Direction), won 44.4% of the vote and were able to form a one-party government under Robert Fico, who became Prime Minister for a second time. 

Thus, in 2012, the permanent bailout fund of the EU, the European Stability Mechanism (ESM), was passed by Slovakia’s parliament on June 22 without any problems. The ESM required Slovakia to pay in nearly EUR 660 million in cash in five tranches between 2012 and 2014, contributing to total financial guarantees of EUR 5.8 billion. It did not increase the budget deficit but rather extended public debt. Note that the government of Iveta Radičová had negotiated a reduction in ESM-contributions of around 17 percent.

In the meantime, Latvia and Lithuania joined the eurozone at the beginning of 2014 and 2015 respectively. Latvia is now the poorest eurozone member, with a per capita GDP of 65% of the EU-28 average. Lithuania stands at 74% and Estonia at 73%. While in Slovakia, the GDP per capita already stood at 74% of the EU-28 average in 2010 and remained almost constant over the next four years, attaining 75% in 2014. In contrast, in Greece, the GDP per capita stood at 87% in 2010, but dramatically tumbled in the next four years to 71% in 2014 – thus the relative positions of the two countries have changed. Therefore, the argument that “poor Slovakia should not pay for the richer countries” is no longer correct. The public debt to GDP ratio rose in Slovakia from 41% in 2010 to 54% in 2014 – partly due to ESM-contributions - while in Greece it climbed from 146% in 2010 to 177% in 2014. Prime Minister Fico again used the argument of the “poor Slovaks with lower salaries and pensions paying the richer ones.” It seems that the initially pro-European course of Mr Fico has changed towards a more critical one, however, this might just be some election tactics ahead of the forthcoming parliamentary elections in March 2016.

Hermine Vidovic: At a meeting of Eurozone finance ministers held in Riga in April this year to discuss Greek bailout aid, Slovenia’s representative Dusan Mramor had apparently lost patience with Greece after months of fruitless talks and suggested a contingency plan (exit of Greece from the Eurozone) if the bailout negotiations fail. This demand was supported by his counterparts from Slovakia and Lithuania, while others – the French Minister of Finance in particular - insisted that there was no other plan for Greece other than to remain in the Eurozone. The statement by the Slovenian minister prompted a sharp response from the Greek Minister of Finance Mr Varoufakis, who accused the Slovenian side of being ‘undignified’ in openly raising the question of a plan B, which he described as ‘profoundly anti-European‘ (Financial Times, 25 April 2015).

At first glance, Slovenia’s position might have come as a surprise. However, already in February 2015 Mr Mramor criticised the Greek government and emphasised that Slovenia will insist on Greece repaying its debts to Slovenia as well as IFIs and pressing on with reforms. According to the minister, Slovenia’s exposure to the Greek debt is the third largest in the EU in terms of GDP (2.7%) after Portugal and Cyprus. Considering this high exposure, the call of the Slovenian Minister of Finance seems rather controversial, since a Grexit would entail high losses for Slovenia. Furthermore, Mr Mramor criticised the new Greek government claiming it had approached only ‘some big countries in a bid to reach a debt compromise, while simply bypassing Slovenia’, although Slovenia had always shown solidarity with Greece.

Overall, it can be concluded that the position of Slovenia is a clear signal to the Greek negotiators that despite the present overall consensus to keep Greece in the Eurozone, the Greek side should bear in mind that a number of vulnerable Euro countries, which have imposed painful austerity measures themselves, will not be willing to tolerate Greece’s delaying tactics indefinitely.

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