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Last Updated: Tuesday, 27 April, 2004, 20:52 GMT 21:52 UK
Slovakia's big leap forward
By Ray Furlong
BBC correspondent

"On the one hand, we are carrying out our reforms for our people, for our home, and on the other I am always happy if Slovakia can be helpful," says Mikulas Dzurinda, the Slovak Prime Minister.

"Some colleagues from neighbouring countries to the north, to the south, asked me to send them the concept of our reforms. I did it with pleasure."

Bratislava's newly renovated opera house
Slovakia has seen record economic growth in the past two years

When Slovakia joins the European Union on Saturday, it will not be as a humble supplicant.

Europe's youngest republic, it was for years derided and ignored under the leadership of authoritarian strongman Vladimir Meciar.

But since he was ousted in 1998, Slovakia has embarked on what are described as the most radical economic reforms in Europe.

Big ambitions

"A flat tax rate of 19% was introduced, making Slovakia more attractive than Britain," says Jan Toth of ING Barings in Bratislava.

"Benefits were cut for people who don't actively seek work, making our labour market better than in France or Germany.

"The same goes for the pension reform. So Slovakia has taken a big leap in the last two years."

The figures also look good.

Last year, Slovakia recorded a 4.2% growth rate - and salaries in Slovakia saw the highest rise in Europe at 11.3%.

And ambitions remain high in Bratislava.

We want to become a net contributor to the EU budget as soon as possible
Ivan Miklos
Slovak Finance Minister

"We want to become a net contributor to the EU budget as soon as possible," says Finance Minister Ivan Miklos.

But Slovakia still has a long road ahead of it.

The average hourly wage here remains 2.33 euros - compared to 27.89 euros in Denmark, for instance.

Unemployment is still stubbornly high, at 17%.

And the reforms have been bulldozed through, at the cost of enormous social and political strain.

Cost of reform

Earlier this month, the government candidate was routed in presidential elections.

Its majority in parliament has disappeared as disaffected MPs have deserted it.

Some of Mr Dzurinda's own coalition partners have said he should step down after Slovakia joins the EU on 1 May 1 - just as Poland's Prime Minister Leszek Miller will.

"I see no reason to resign, I see every reason to press on," says Mr Dzurinda.

"I understand my low popularity is the price of the reforms. But given time, people will feel the positive affects."

Political analyst Ivo Samson says Mr Dzurinda is safe because his own party, or at least what is left of it, still backs him.

"The government won't fall, but no-one can imagine Mr Dzurinda winning the next election.

"He'll go down in history as the man who brought Slovakia to Nato and the EU, but now his mission is fulfilled and I think he should be replaced," he says.

Unfair competition

Volkswagen cars off the Bratislava production line
Existing EU countries worry about their industry relocating to Slovakia

And as Mr Dzurinda weathers the storm, his government has come under attack from an unexpected quarter.

The German Chancellor, Gerhard Schroeder, has accused Slovakia of unfair competition for "dumping" tax rates.

Mr Schroeder's comments reflect growing anxiety in Germany about industries relocating their factories - and jobs - to new EU member states.

Slovak Finance Minister Ivan Miklos is scathing about the criticism.

"I understand he's under pressure from German investors and entrepreneurs who are criticising the high taxation and not optimal business environment in Germany," he says.

"But for solving this problem - and this is the problem - it's necessary to do structural reforms in the present EU countries."

In the same breath, he denies that Slovakia aspires to teach the rest of Europe a thing or two about economic policy.

But the impression to the contrary remains.


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