national populism and slovak – hungarian relations in - MEK

Zsolt GálNational Populism and Slovak – Hungarian Relations in Slovakia 2006 – 2009. Forum Minority Research Institute Šamorín – Somorja, 2009liamentary elections followed by municipal elections). It is highly improbablethat the incumbent administration will embrace restrictive fiscal policy inthe election year; but if it doesn’t, public finance deficit may climb to 6–8%of GDP and public debt to 40% of GDP in 2009–2010.Other measures adopted by the incumbent administration also documentexistence of the new populist cycle: halting most structural reforms (evendestruction of already reformed health service system and permanentattempts to destroy the pension reform) and privatization that pose furtherthreats for the public finance sector. State enterprises keep posting lossesand public institutions keep running on deficit budgets, i.e. they will continueto require rescuing from state budget funds. The country’s health serviceagain began to pile up implicit public debt and the program of highwayconstruction through public-private partnerships (PPP) brings immense risksof creating further implicit debts; in PPP contracts, government agreed tomake annual payments to highway developers and operators for periods of20 to 30 years).Should excessive deficits be sustained even after 2010, along withimplicit debts they might bring the country’s public finance system to theverge of collapse by 2014 (like in Hungary in 2008 or in Slovakia a decadeearlier). The only available solution is to reduce expenditures and launchfurther structural reforms, an idea the incumbent administration is highlyunlikely to embrace before the end of the current electoral term.Public opinion polls continue to suggest very high popularity of PremierRobert Fico and his party; it is very likely that the new administrationformed after the 2010 elections will again be dominated by SMER-SD. Itis very unrealistic that such an administration will embrace restrictive fiscalpolicy or structural reforms; on the contrary, it will try to increase budgetaryrevenues through jacking up taxes (Finance Minister Ján Poèiatek hasalready mentioned such an option), which is a rather limited tool that isunlikely to bring the desirable and necessary effect. 18Consequently, the country’s fiscal condition may continue to deteriorateuntil the imminent threat of government’s insolvency, i.e. the final stage ofthe populist cycle. The only difference compared to the most recent populistcycle is that Slovakia already managed to adopt the single European currency,i.e. the crisis caused by irresponsible national fiscal policy cannot causethe collapse of euro. But Slovakia still runs the risk of cumulative loss ofcompetitiveness since higher inflation in Slovakia as a direct result of fiscalexpansion will not be matched by a parallel growth in labour productivity; inother words, Slovakia is likely to experience problems of southern membersof euro-zone that may only be cured by the painful mix of restrictive fiscal214