Thoughts On Slovakia, Greece And The EFSF Bailout

A lot has been said recently about Slovakia’s “unwillingness” to financially support the expansion of the bailout package orchestrated by the fellow members of the European Union and the European Financial Stability Facility (EFSF). I thought I’d share some of my own thoughts on the issue.

First and foremost, let me state the following: I am a Slovak citizen. I was born and raised there and left for United States in 2002 at the age of 20. I am currently not affiliated with any Slovakian political party, nor have been in the past.

Now let me lay down some basic economic facts about Slovakia and Greece.

– Slovakia, which only adopted the Euro last year, is the EU’s second poorest member and currently has some of the lowest salaries, averaging about €780 a month vs. Greece’s minimum of €750.

– Slovakia has a per capita GDP of USD $23,000 to Greece’s USD $27,000 at purchasing power parity.

– The average monthly pension in Slovakia is less than €400 compared to €1,400 in Greece.

Greece has a long history of corruption, government mismanagement and tax evasion (remember the outdoor pool story?). The Greeks have been living beyond their means for years, and their country’s rising debt level has placed a huge strain on it’s economy. The Greek government also borrowed and spent heavily after it adopted the Euro and in 2010 had a public debt of nearly 143% of its GDP – a staggering number by all means.

So no wonder the Slovaks are furious over the bailout.

Earlier today I had a conversation with an old college friend from Slovakia. He points out an important and mostly overlooked fact: Slovakia will not be paying for the bailout from some sort of financial reserves. It has to borrow money in the market and pay interest on it; and the more it borrows, the more it will cost it to borrow in the future.

But here’s what my friend had to say about the logic behind the bailout opposition:

Come back home to Slovakia, work for 600 Euro a month like most Slovaks and maybe then you will understand. Looks like you have been away for too long. Enough is enough. The thing is the bloody bailout will pass anyway, however, I strongly believe there is nothing wrong about expressing your own opinions in democracy. Or is there? We can argue if this was the right or wrong vote, but at least we are strong enough to have our say. Isn’t this something we were deprived from in communism and have long fought for?

This quote from Richard Sulik, the speaker of the Slovak parliament and head of the Freedom and Solidarity (SaS) party, sums it up best:

“It is no longer about Greece, it is about the euro.” This, and similar nonsense, is what the European politicians use to frighten their voters and explain them why they must continue in moral hazard. Just like it is impossible to extinguish fire with a fan, it is equally impossible to solve the debt crisis with new debts. The only thing that will help is to face the truth. Greece must declare bankruptcy, Italy must start saving and the rules set up by the eurozone upon its establishment must finally start being observed. It will hurt, but it is the only solution.

Btw.. I strongly recommend you read this brochure (PDF, in English) on the SaS website which explains the party’s refusal to back the ESFS.

The way I see it is that you cannot solve the ‘Greek problem’ just by throwing money at it. What Greece needs is a major government and financial restructuring, better fiscal spending policy and tougher tax regulations. But what the Greeks need most is the actual will and courage to implement and enforce such changes and policies in the first place. Any sustainable long-term solution to their country’s problems must come from within themselves first – not from the EFSF or coutries like Slovakia. If not, it will cost Greece and the European Union only more and more money over time.