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Slovakian report
by Euro Reporter
2013-11-21 09:23:34
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Slovaks can do something about it

US ambassador to Slovakia Theodore Sedgwick keeps in his Bratislava office a large map of Slovakia with numerous pins marking all the places in the country he has visited. “I am not just the ambassador to Bratislava; I am an ambassador to the whole of Slovakia,” said Sedgwick, adding that he adores the beauty that Slovakia has to offer and he will remember all of his travels. When talking to foreign investors about Slovakia, Sedgwick has a lot of positive things to say about the business climate here. However, he admits that he also has to tell them about the unpredictability of the rule of law in this country.

“I think the country leadership needs to look at the impact this could have on foreign direct investment in a time when unemployment is high,” Sedgwick said in an interview with The Slovak Spectator. The Slovak Spectator spoke to Sedgwick about the Transatlantic Trade and Investment Partnership (TTIP), the rule of law and the business environment as well as his diplomatic mission here in Slovakia. The United States and the EU are negotiating the TTIP. Once signed, what will the trade deal mean for the US-Slovak economic cooperation?

I am very hopeful about prospects for successful negotiation of the TTIP and I think the fact that the president decided to go forward in the negotiations really reflects the strength of transatlantic relationships and that United States sees Europe as its indispensible partner, not only in security but also in the economy. The results of the negotiations would be the reduction or elimination of unnecessary regulations and, more importantly, setting standards for all kinds of products. This has huge potential, because if the two sides of the Atlantic are able to get together, since the EU and US represent half of the GDP of the world, and agree on setting standards, we will be able to improve our market position around the world. The negotiations are going to be very challenging because there are special interest groups on both sides of the Atlantic who have investment interests and who might worry that their interests might be harmed. I am sure there will be some losers but I think there will be mostly winners. The European trade commissioner has commissioned a study by the London Centre for Economic Policy Research (CEPR) asking about the impact the TTIP is going to have and the answer came back: for every additional billion euros in trade and services, it will provide another 8,000 jobs in the US and 15,000 jobs in the EU. Slovaks would be specifically interested in the impact the TTIP would have on the automobile market since Slovakia is the largest per capita auto manufacturer in the world. A study on the impact on the automobile industry suggested that the deal, if successful, could result in up to a 149 percent increase in exports of European cars to the US. The European Automobile Manufacturers’ Association has already endorsed this agreement and we think it will have a very positive impact here in Slovakia.

The first participants of the Slovak American Foundation’s professional internship programme have already returned to Slovakia. Could you give some examples of the employment opportunities the young Slovaks had in the US and how you expect this will benefit Slovakia?

It is a great programme because the foundation provides a stipend, transportation and lodging for the intern to go to the US, and also locates companies that will employ the interns. The variety of work they do is very interesting, while it is tailored to the individual. They worked in New York, Silicon Valley and Washington and the sectors are everywhere from international finances to architecture, to software, mobile application development and government relations. I found in my experiences as a diplomat that the best way to promote relations between our countries is actually bringing Slovaks to the US.

Amnesty International and Slovakia’s ombudswoman Jana Dubovcová warned about serious human rights violations by state bodies in relation to Roma policies, including segregation. However, recently a group of US diplomats operating in Slovakia, the Czech Republic, Bulgaria and Serbia witnessed some positive examples in three elementary schools in eastern Slovakia and praised the schools for their approach to integrating Roma into the majority society. Could you give some more details about their positive experiences as well as the reasons behind the diplomats’ visit to the schools?

Frankly, we had similar challenges in the US going back to our civil rights period not that long ago in 1950s, and we identified segregation at school as being a key obstacle to inclusion of minorities. As you know the US does an annual human rights report and the concern about minorities is embedded in our foreign policy values. We are very interested in following this issue and that is why diplomats from Prague, Belgrade and Sofia visited these schools and they were generally impressed with the sincerity and the progress that these schools are making in desegregation, but clearly this is just the beginning of the process and there is more work to be done. It is not something where you can just turn on the switch and change it from segregation to desegregation. You are dealing with a lot of students and parents and their personal attitudes; you try to encourage human nature in a positive direction and it takes time.


State will create 15,000 jobs for youth

The Slovak Labour Ministry has earmarked €100m in European funds to create 15,000 private sector jobs in 2014 and 2015. An employer who hires an under-25 who has been unemployed for over 3 months will receive aid of up to €456.57 per month. Pravda reports that this is the second such programme aimed at getting young people into the work force. In 2012 and 2013, some 11,000 young job seekers found work.

This latest initiative of the Slovak government, notes the paper, was announced a few days after the summit of 24 European leaders to discuss youth unemployment, held on November 12 in Paris. Some 81,000 young people are without jobs in Slovakia, part of an overall 5.6m young unemployed throughout the EU.


Fitch affirms Slovakia at 'A+'; outlook stable

Fitch Ratings has affirmed Slovakia's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'A+'. The issue ratings on Slovakia's senior unsecured foreign and local currency bonds are also affirmed at 'A+'. The Outlooks on the Long-term IDRs are Stable. The Country Ceiling is affirmed at 'AAA' and the Short-term foreign currency IDR at 'F1'. KEY RATING DRIVERS The affirmation and Stable Outlook reflect the following factors: -Membership of the eurozone continues to benefit Slovakia's economic development, by promoting a robust institutional framework, expanding its export sectors and improving prospects for inward investment. EMU membership also limits balance of payments and exchange rate risks. -Slovakia's real GDP growth remains one of the strongest in the eurozone and among Central and Eastern European peers. The impact from weaker eurozone growth in 1H13 has led Fitch to revise down its real GDP growth forecast for 2013 to 0.8% from 1.2% back in May 2013, but the agency expects growth to recover to 2.2% in 2014. -A solid banking sector remains a key strength of Slovakia's ratings.

A strong domestic funding base has facilitated net lending by Slovak foreign subsidiaries to their West European parent banks. The average capital adequacy ratio is high at 16.9%, and the ratio of loan-to-deposits is conservative at 89%. Fitch does not view the Slovak banking sector as a material contingent liability for the sovereign. -Improved external finances also support Slovakia's ratings. Fitch expects the sovereign to maintain its current account surplus over the agency's forecast horizon. Slovakia's lower unit labour costs relative to its European peers will continue to support the external competitiveness of its service and industrial sectors. The current account will also benefit from the eurozone's more positive economic outlook over the medium term. Sustained current account surpluses would help to contain Slovakia's gross and net external debt ratios, which at 77% and 31% of GDP respectively are high relative to 'A' peers of 50% and -16% respectively. -Slovakia's year-to-date fiscal consolidation progress suggests the sovereign is on track to bring its headline budget deficit below 3% of GDP by end-2013.

However, Fitch continues to highlight the sovereign's reliance so far on one-off revenue measures to reach fiscal targets, rather than on more sustainable consolidation of public expenses. While Slovakia's ratio of government expenditure to GDP of 38% (end-2012) is below the eurozone average of 50%, further evidence of credible expenditure measures would increase Fitch's confidence in the sovereign's ability to improve the medium-term sustainability of public finances. -The authorities remain vigilant on keeping the government debt-to-GDP ratio below the constitutional debt ceiling of 57%. Relative to the eurozone's average debt-to-GDP ratio of 91%, Slovakia's public debt ratio is significantly lower, although worse than 'A' and 'AA' rated medians with debt ratios of 38% and 27% respectively. Downside risks to public finances are probable if economic growth proves weaker-than-expected. Slovak parliamentary elections fall in 1H16, the same time the country will take up EU council presidency; discipline on public spending over 2015-2016 could prove challenging.


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