Forgetting the crown

The notorious stamp affair, a lawsuit against a group of people accused of forging some hundred million crowns, continues to drag on sixteen years after Slovakia introduced its own currency, the Slovak crown (locally known as the koruna). The case is shrouded in mystery, with one theory claiming that the fraud was perpetrated by the secret services on direct orders of the then Prime Minister Vladimír Mečiar; one of those involved, probably a secret service stooge, was assassinated in 1996.

In this case, the sluggish work of the Slovak courts has reached truly epic dimensions, and the victim of the alleged fraud – the Slovak crown – will not live to see justice done: it is disappearing and being replaced by the euro. And unlike the justice system, Slovak banking seems to be working effectively, and the introduction of the euro has so far proceeded without glitches, no doubt partly also because the Slovaks have accepted it with a calm stoicism.

Rašín’’s legacy

Most politicians and economists agree that the euro is good for Slovakia. Ivan Šramko, governor of the country’’s Central Bank, believes that during a financial crisis the importance of a firm anchor for small and open economies becomes obvious and that the euro might bring in new investment. Governor Šramko can take some political credit for the introduction of the euro. It was he who persuaded the newly elected Prime Minister Robert Fico to continue the process of adopting the euro in the summer of 2006.

At that time the left-wing Prime Minister Fico was openly hesitating whether to continue the policies of his predecessor and main rival, Mikuláš Dzurinda. Fico was right to suspect that Dzurinda’’s cabinet was hoping to use the euro adoption process to safeguard its reforms and limit the budgetary options of any future government. He did not like it one little bit and was very open about it, declaring that Slovakia would adopt the euro only if it was good for its citizens. However, a few days after he assumed office the Slovak currency started falling rapidly and it became clear that the only way to halt its fall was to declare unambiguously the new government’’s intention to continue the process of adopting the euro.

While Robert Fico is keen to pass for a left-wing politician, he was terrified at the  thought that he might be held responsible for a dramatic weakening of the Slovak crown. After all, a profound respect for a strong currency is part of good old Slovak tradition. It goes back to the legacy of the first Czechoslovak Republic (1918-1938) and its Finance Minister Alois Rašín, but the crown was very strong also during the wartime Slovak Republic when the country’’s Central Bank was led by Imrich Karvaš, and the street that now houses the massive 111 metre tall National Bank building, blanketed in a massive advertisement for the euro, today bears his name. No Slovak politician would dare to shoulder the responsibility for the fall of the crown. Respect for the currency trumps any ideology.

So Fico placed his trust in Governor Šramko, and was also fortunate in that the Slovak economy continued to grow dramatically, allowing the government to meet the Maastricht criteria which included keeping public finance and inflation under control. All he had to do was persuade the nation that euro adoption was in its interest.

Let’s rush to the bank

The first days of the euro have shown that worries about a negative reaction from the man in the street was unfounded: nobody is complaining, people are learning to count their new coins and avoid tipping to make sure they don’’t overdo it.

Wherever you go, you see the same picture: customers and cashiers in the shops having fun revising their multiplication tables together. It is extraordinary how easily people have abandoned one of the symbols of an independent state. But it follows a specific Slovak logic.

The nineties were full of dramatic twists and turns. The Slovaks acquired their own state almost by the way, and the period of Vladimír Mečiar’s government may have been the first time in history that they had to start thinking about a future that was in their own hands. By ousting Mečiar in the 1998 general election the Slovaks indicated that they wished to link their future to the European Union. From that moment on, society and its political elites have accepted Brussels’‘s political patronage, refocussing their loyalties, previously directed at Budapest, Vienna, Moscow or Prague. The adoption of the euro was thus, from the Slovak perspective, a logical next step, an expression of loyalty to the EU. Discussions about whether the euro is a good thing for us or not, are therefore pointless in Slovakia, just as it is pointless to shed tears over the demise of the Slovak crown.  Which nobody seems to be doing anyway.

The people have accepted that the crown would become useless, and responded to the National Bank’s appeal to deposit in banks money they were keeping under the mattress.Bank deposits grew by 15% compared with the previous year, with 50 billion crowns deposited by September and monthly deposits going up to tens of billions during autumn. And on January 1 all these crowns turned into euros, as if by magic.

The first days of the new year have also proved that worries over price increases  were unfounded. This was thanks not so much to the draconian law which Prime Minister Fico pushed through making unjustified price hikes punishable by a term of imprisonment (it was Malta that first had the idea to criminalize the rounding up of prices following the adoption of the euro). Rather, it was the result of other factors: an effective campaign preparing the people for the euro, the global economic crisis that has dampened prices, an atmosphere of social vigilance and, last but not least, competition among chainstores, which have been making public pledges not to tamper with prices until March.

Besides, euro prices have one great advantage, particularly in Bratislava and its environs: it has suddenly become obvious that a mere ten-minute drive and a few kilometers further away,  across the Austrian border, petrol is 10 cents (i.e. 3 crowns) cheaper than at Slovak petrol stations, and that groceries are much cheaper in Austrian supermarkets. Similarly, on the borders with Hungary and the Czech Republic, a simple calculation shows the Slovaks that a strong euro makes it worthwhile to shop next door. Actually, by last autumn the Slovak crown, whose exchange rate was fixed at 30 to the euro last July, almost caught up with the Czech crown. And between mid-June and the end of the year the rate for 100 Slovak crowns rose from 76 to 89 Czech Crowns; to put it another way, by year’’s end 100 Czech Crowns would buy only 110 Slovak crowns. This is not good news for the Czechs, as Slovakia is now much more expensive for them.  It is quite another matter  how this will affect the Slovak tourism industry.

The Slovak Bureau of Statistics, which has been tracking the development of prices since 2 January, said the prices of basic goods, particularly food, have remained basically unchanged, and in some cases have even gone down. Prime Minister Fico declared with satisfaction that Slovakia might be the only country where the adoption of the euro won’’t result in price increases and growing inflation. He even went so far as to estimate that the rate of inflation for this year would be below 3%.

Nevertheless, the first signs of price increases have become visible in the services sector, which none the less still boasts prices well below the European average. Newspapers have started naming and shaming restaurants and taxi companies that have been overcharging and driving schools, in particular, have been pilloried. However, according to the European Commission, the experience from Malta, Cyprus and Slovenia shows that the adoption of the euro as such does not increase inflation by more than 0.3% (even though opinion polls suggest that people believe that the increase was much higher).

A conditional miracle

So far, what we have here seems to be a success story: that of a small country joining the first league of European nations. This is how foreign newspapers have been commenting on Slovakia and this is what the Slovaks feel themselves. Opinion polls indicate that their national pride has swollen rapidly, and that they are currently among the most fervent advocates of the European Union project.

Slovakia has come a long way over the 16 years while the crown was its currency.  Major financial frauds such as the stamp affair and paranoid governments of the early years have faded into the distant past. And although the current coalition is a strange mix of nationalists such as Ján Slota, political mavericks like Vladimír Mečiar and pragmatists of Fico’’s Smer party, loyalty binds them to Brussels. And besides, everyone loves the euro, especially when it comes flowing in from the coffers of the EU.

The smooth adoption of the euro has overshadowed the corruption scandals that normally dominate Slovak politics. Long forgotten is the strange meeting between the Finance Minister Ján Počiatek and shady enterpreneurs who made hundreds of millions of crowns speculating against the Slovak currency before its exchange rate with the euro was fixed. The Banker magazine has named Počiatek the best finance minister of 2008. However, the previous recipient of same prize in 2004, awarded by Euromoney magazine, is former Finance Minister, Ivan Mikloš, whose contribution to Slovakia’’s joining of the eurozone has been enormous. So it is somewhat surprising that both he and Mikuláš Dzurinda have not been very vocal in claiming credit for the success of their project. Perhaps they are waiting for the moment when the combination of a strong euro and economic crisis brings Slovakia to its knees and topples the Fico government. That would be the beginning of quite a different phase of the Slovak economic miracle.

Translation: Julia Sherwood

This article was originally published in Czech in the Respekt on 12 January 2009.

We are grateful to Martin M. Šimečka for the permission to publish this text in English.