Taking the Euro for Granted

In the summer of 2006, when Robert Fico and his left-wing party Smer won Slovakia’s parliamentary election, the country was roughly half way on the road to adopting the euro in January 2009. Nevertheless, Fico declared he would have to think about whether the deadline could be met. Soon afterwards the Slovak crown started to slide uncontrollably and as it was about to reach the permissible limit the then National Bank governor requested an urgent meeting with the new Prime Minister. Witnesses recall this key debate, which helped Fico realize that jumping off the train headed for the eurozone would be lethal for Slovakia’s economy. From then on, to this day, he has been an ardent supporter of the euro.

Fico had good political and personal reasons to fear the euro. It hurt his vanity to think that his predecessor Mikuláš Dzurinda’s reformist right-of-centre government had played a budget austerity trick on him, nor was he particularly keen on European integration. On the other hand, he inherited an economy that was growing at an increasingly fast rate, reaching nearly 10 per cent, which enabled him to maintain fiscal discipline without causing too much pain. At the same time, he was clever and flexible enough to realize that for a small country on the periphery of the European Union it was of vital importance to hold on to Brussels come hell or high water.

Sometimes it just happens that the gears of history click into place with unexpected ease. Thus, Slovakia has managed to join the eurozone, while Poland has missed its chance and the Czechs and the Hungarians have never really considered it. Characteristically, each nation pretends to be happy with its own story.

This is best illustrated by the economic debate in the Czech and Slovak Republics. Most Czech economists (and politicians) claim that delaying the adoption of the euro, and waiting to see how things develop when the crisis is over, was the right thing to do. The Slovaks take a different view, with for example former Finance Minister Ivan Mikloš repeatedly stressing that the adoption of the euro added an estimated annual growth of 1 per cent of GDP, despite the increased expenditure on bailing out Greece and other countries.

Since the Slovak and Czech economies share a similar structure and openness, they can’t both be right. Judging by the economic developments of the past few years it is the Czech side that is wrong. Even though in 2009, the first year of the crisis, both countries‘ economies slumped by five per cent, over the following three years Slovakia grew by an average 3 per cent while the Czech Republic stagnated. In both countries the main engine of the economy is car production but in this respect, too, Slovakia has overtaken the Czech Republic, becoming the largest per capita car producer in the world. One of the arguments foreign investors give for preferring Slovakia has been the euro.

Admittedly, the crisis has shown that the euro can become an impediment for some countries, especially if they get into difficulties and cannot resolve them by devaluing their currency or increasing indebtedness. However, this is not a problem for Slovakia—at least so far—as the country underwent fundamental economic reforms ten years ago and was able to keep debt at a sensible level. In this respect, incidentally, it also bears resemblance to the Czech Republic which, while happy to stick with the Czech crown, has virtually copied eurozone policies in terms of fiscal discipline, austerity measures, and the interest rates set by its national bank, even at the cost of recession.

The example of the Czech and Slovak Republics makes it obvious that the argument about economic advantages or disadvantages of the euro is highly ideological. The Slovak case suggests quite strongly that it makes great sense economically.

What might be even more important, though, is the factor of eurozone membership. Slovakia’s determination to join the euro was driven by the bitter experience of the 1990s when the country became isolated under Vladimír Mečiar’s authoritarian rule and the prospect of EU and NATO membership seemed to be on the wane. The Slovaks were shocked to realize that local politicians posed a far greater threat to their country than foreign influence. That is why, in the eyes of the Slovaks, the European Union has become a safeguard against unpredictable local populists. And that is why there was broad social consensus on the deepest possible integration with the EU. It is no accident that the Slovaks remained the greatest fans of the common currency (with 80 per cent support), even after adopting the euro which they saw as a symbolic culmination of their “return to Europe.”

The physical presence of European banknotes and coins that began to pass through Slovaks‘ hands has had a remarkable impact on their way of thinking. The European Union has inadvertently become part of domestic political debate whereas, by contrast, in the Czech Republic the EU is still perceived as being “abroad.” The Greek drama, in its turn, provided the Slovaks with a kind of a national crash course in European politics and the way it directly affects their lives and domestic politics. In the autumn of 2011, Iveta Radičová’s government was brought down by the refusal of one of the coalition parties, Freedom and Solidarity (SaS), to endorse Slovakia’s contribution to the European rescue fund. Since coming back to power in the subsequent early election, Robert Fico hasn‘t stopped repeating the mantra that Slovakia’s loyalty to the euro and to Brussels was “in the country’s vital interest.“

Strangely enough, even in the most desperate moments, when it seemed that the eurozone might fall apart, no one in Slovakia showed any nostalgia for the Slovak crown or had any doubts about whether it was sensible to rush into joining the euro. SaS, the only euro-sceptical party that had been fiercely critical of bailing out indebted southern European countries on the grounds that it wasn’t fair for the poor Slovaks to pay for the lazy and rich Greeks, Spaniards or Portuguese, has been teetering on the brink of political extinction, its support hovering around 6 per cent.

Of course, this doesn’t mean that the Slovaks are as enthusiastic about the euro as they were initially, but their attitude nevertheless remains positive or, to be more precise, they simply take the euro for granted and after four years people have virtually stopped converting prices into the old currency. It is quite an awesome experience to pay with the same coins in a pub in a remote hamlet in Eastern Slovakia as in Paris or Berlin and the Slovaks are secretly proud of this fact and happy with their story of joining the euro. This small country ought to serve as great advertisement for European integration, yet its example is not quite transferable. For the gears of history seem to have clicked with too much ease in this case.