ECONOMY-SLOVAKIA: Joining EU Will Bring Early Shocks

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Ed Holt

BRATISLAVA, May 24 2002 (IPS) - Slovakia will see a significant rise in prices and in unemployment once it joins the European Union, a study commissioned by the government shows.

Prices are set to jump nearly a fifth, the study says, spelling at least short-term misery in a country where average wages are 30 per cent of the European Union (EU) average. Unemployment which is among the highest in Europe at 19 per cent will grow as businesses lay off workers, according to preliminary findings of a study carried out by the Slovak Academy of Sciences (SAV).

Slovakia is among 10 countries that could be invited at the end of this year to join the EU in 2004. Others include Poland, Hungary, the Czech Republic and the Baltic states.

“We can see there are threats to unemployment as some firms which are not competitive and profitable may be forced out of business,” says Maria Kadlecikova, Deputy Prime Minister of Slovakia with charge of Integration. “The cost of energy will go up and we expect other prices to rise. But all this will only be in the short term – the first six months to one year after entry.”

Richard Outrata, co-author of the report says the short-term pain will mean “problems with prices, an initial rise in unemployment and high costs of bringing legislation into line with that in the EU.”

The preliminary findings indicate that prices would rise 16 per cent on average after EU entry. The Slovak central bank predicts inflation at between 3.5 and 4.9 per cent this year.

Prices artificially maintained by government for provisions such as gas, power and heating are expected to rise most as they are brought to market levels.

The SAV recommends immediate raising of prices to cushion the potential shock. But citizens are complaining already of price hikes implemented this year to meet pre-accession conditions.

The price of an average packet of cigarettes was for example raised by six Slovak crowns (eight cents) in January. The government won a five-year transition period in March to raise cigarette prices to EU levels. Cigarette prices would eventually rise three times.

“We have negotiated these periods to help after entry and we have also reserved some money from state funds to help businesses prepare for the effects of entry,” says Kadlecikova. “As of June this year we will be running an intensive campaign for businesses to make them aware of the possible impact for them when we join the European Union.”

But while some Slovaks want the government to cushion the blow with cash compensation, lower taxes on some goods and more transition periods, there is a realisation that the government may lack the resources.

“It would be nice if the government could do something to help but they already have to put money into other areas like health care,” says Jaroslava Abrahamova, a 40-year-old unemployed woman living in Bratislava.

Representatives of the European Commission (EC), the executive arm of the EU, say Slovakia should not fear accession. The EC says many aspirant states have already forged links with partners from the EU and that trade is already partially liberalised. The economic changes brought about by full liberalisation upon entry will not be that extreme, the EC claims.

Despite the potential threats to employment and prices, a recent poll shows that 65 per cent of Slovaks back entry into the EU. Another survey by the Slovak Agency for the Development of Small and Medium-sized Enterprises shows that the majority of smaller businesses support EU accession. They expect to benefit from improved access to capital, new technologies and better cooperation with foreign partners.

Outrata says there could be a fall in unemployment in the long run. Its completed study will indicate that the “economic gains of joining the Union will in the long run be far more than the short-term losses,” he says.