Shrinking banks and who they will affect most (look on the right)

Attard Montalto reckons that to reach the new loan-to-deposit (LTD) ratio, loans will be cut back rather than deposits increased. And here is a picture of the relative size of the problem – LTD ratios by country:
Source: Nomura

European banks are ailing, exposed as they are to the sovereign debt of countries on the brink of insolvency. A series of failures among European banks would be likely to result in heavy losses for their own creditors. As a result, financial institutions around the world are getting understandably nervous about lending to them. The natural response by Europe's banks is to rein in their own lending to shore up their balance sheets. The upshot is going to be a recovery-stunting tightening of global credit conditions.
The global financial crisis gave us a lesson in how a crisis can spread between financial systems. Three years ago the sub-prime crisis spread from the US to Europe. In 2011 the stress has been crossing the Atlantic in the other direction. The US financial sector was hit harder than other industries by the stockmarket sell-offs in August. Then, in late October, MF Global, a derivatives broker, became the first major US casualty of the euro zone crisis, filing for bankruptcy after making heavy losses on its US$6bn portfolio of European sovereign bonds.
In October the Treasury Secretary, Tim Geithner, claimed that "the direct exposure of the US financial system to the countries under the most pressure in Europe is very modest." That's not strictly untrue, but it is a little misleading. The overall direct exposure of the US financial system to the debt of Greece, Italy, Spain, Ireland and Portugal is about US$147bn, accounting for only 6% of total foreign claims on those sovereigns, according to calculations by Goldman Sachs that are based on data from the Bank for International Settlements (BIS). European banks account for 89% of total foreign claims on the so-called PIIGS governments.
However, the indirect exposure of US banks to problem sovereign debt through derivatives, guarantees and commitments is much higher, totalling around US$493bn. If indirect exposure is included, US banks account for 18% of total foreign exposure. This is equivalent to around 5% of the total assets of US banks. That may still sound low, but losses of that size could cause the collapse of banks operating with low capital ratios. Exposure would also be unevenly distributed, with some banks more vulnerable.
These exposures also leave out lending to shaky European banks. Lending by US banks to French and German banks (which are collectively the largest holders of peripheral euro zone debt) is worth around US$1.2trn. Money-market funds are even more worried about their exposure to European banks. The ten largest US money-market funds alone had outstanding short-term loans to European banks worth US$285bn at the end of August 2011, equivalent to about 42% of their total assets, according to Fitch Ratings.
The exposure of money-market funds should not be taken lightly. They are the largest suppliers of dollar funding to non-US banks. In September 2008 the near-failure of the US$62bn Reserve Primary Fund triggered a run on money-market funds that caused enormous stress in global interbank and foreign-exchange markets, until the US government stepped in to bail out the sector.
Money-market funds are already moving to reduce their exposure to European banks: they reduced short-term lending to banks in Europe by 14% between the end of August and the end of September. The resulting stress is clear to see in the European interbank market, where the EURIBOR-OIS spread has widened to levels not seen since the 2008-09 global financial crisis, indicating that banks are getting very nervous about lending to each other.
For the moment, the move by money-market funds away from Europe is improving credit availability in some other areas. For example, Fitch reports that lending to Australia, Canada, Japan and some Nordic countries has increased. But money-market funds have also retreated into US Treasuries and US agency debt. If they continue their flight toward safety, financial institutions around the world will find it increasingly hard to obtain dollar liquidity. Central banks have responded to this threat by reactivating currency swap facilities set up during the 2008-09 credit crunch.
Reduced lending by European banks themselves could have an even bigger effect. The latest crisis has saddled Europe with the image of an impoverished debtor in desperate need of creditors. If that were wholly true, the risks facing financial institutions in other regions would stem mainly from the losses they might suffer on the money they have lent to their European counterparts (or, as in the case of MF Global, on derivatives that indirectly expose them to failures in Europe). But that doesn't tell the full story. The euro zone might be struggling to deal with a handful of crisis-plagued countries, but the bloc as a whole is actually an important supplier of credit to other regions, especially emerging markets. European banks have generally pursued growth by expanding lending into emerging markets. This is in contrast to the US, where banks have instead sought growth through securitisation of income streams, particularly mortgages (with well-known disastrous effects).
According to data from the BIS, the stock of lending by western European banks to banks in emerging markets totalled US$3.6trn at the end of June 2011, equivalent to 71% of emerging market banks' total borrowing (that figure includes 19% accounted for by the UK). European lending dwarfed the US$765bn (15.1% of the total) loaned to emerging markets by US banks and the US$311bn (6.2%) loaned by Japanese banks. Eastern Europe relies on western European banks for over 90% of its banks' foreign funding. Banks in the Middle East and Africa are reliant on European bank lending for 82% of their foreign borrowing, while even banks in Latin America and emerging Asia source 68% and 53% of their foreign borrowing from western European banks, respectively.
For economies that rely on foreign borrowing, the high proportion coming from Europe is a serious vulnerability. The claims of European banks on the Czech Republic were equivalent to 97% of Czech GDP in mid-2011, the highest ratio in the world. All of the most exposed countries by this measure are in eastern Europe. Chile, with liabilities to European banks worth 37% of GDP, is the next most exposed emerging economy, followed by South Africa (27%), Turkey (22%), Malaysia (22%) and Mexico (21%).
Asia and Latin America are less dependent on credit from western European banks, and their strong external positions afford some protection. That said, they would by no means be immune from a process of accelerated deleveraging by western European banks.
Reliance on European money is also becoming an important factor in the outlook for economic growth in many countries. As European banks find it difficult to raise funds themselves, and as they suffer losses on their assets, their natural response is to retrench. Moreover, the plan to recapitalise euro zone banks that was agreed in late October will require them to raise €106bn (US$146bn) in new capital by mid-2012. In a weak environment for equities, they will be reluctant to issue new stock to meet the requirements. Instead, they are likely to shrink their asset base by cutting their lending. The resulting crunch in global credit markets is going to make it harder for businesses and consumers all around the world to borrow, while the most exposed economies could flirt with balance-of-payments crises. In many ways, Europe's banks can do just as much harm to their debtors as their creditors.

What Robert Fico needs to answer for before he tries to become Slovakia's Prime Minister again

Robert Fico has a mixed record as a politician. He chose to ally with failed politicians of the past, and has associated the Slovak left with nationalism..

He is very popular for all the wrong reasons, and he needs to show much more statesmanship

New government for Slovakia by March 2012

Slovak PM Iveta Radicova (left) with Angela Merkel (German Chancellor)
It may feel like a long time from now, but by March 2012 Slovakia will have a new a government.

Well placed observers believe that the country will be led by a grand coalition of the left and the right, a bit like Ms Merkel's coalition with the SPD in Germany. 

The female PM Ms Radicova is not likely to stay. It is hard to say whether the real instrument of her downfall was her fractious coalition ally.

The challenges of the global situation necessitate national unity and resolve. 

The centre of Bratislava is being redeveloped

A significant urban regeneration project on a 3.5 hectare site at the very center of the inner city core of Bratislava.

Kamenne namestie today

Project when completed 2013-4

Location: Bratislava city core
Retail: 60,000 m2
Leisure: 12,000 m2
Office and Hotel: 50,000 m2
Parking: 2, 000 spaces
Cooperation: Tesco
Sector: Mixed use
Completion: 2013/14
Country: Slovakia

Credit reating agency affirms A+ rating and stable outlook - Slovak central bank chief predicts euro fiscal union

Parker  told  Dow  Jones  Newswires.  In  July 2008  Fitch  revised  Slovakia’s  Long-term foreign  currency  Issuer Default  rating  (IDR) to A+  from  'A'  on  stable outlook. The  rating agency  affirmed  Slovakia's  IDRs  at  'A+'  in June 2011.

Prime  Minister  Iveta  Radicova  informed  that  the National Bank Governor and member of the ECB Governing Council Jozef Makuch said that  the euro will need a  fiscal union to work in the long-term. According to Makuch, mechanisms  adopted  at  the  level of the  European  Council  are  only  a  short-term
solution.  “The  euro  is  a  stable  currency,  yet it's only standing on one leg,” Radicova paraphrased the governor.

Wages and buying power:gap between Austria and Slovakia/Czech/Poland shrinking

Until recently, Austria's neighbours in Central Europe were ahead by a nose with investors, especially because of the cheap wages paid in the East. However, that situation is changing rapidly. The wage and buying power gap between Eastern and Western Europe is getting smaller. This will have an effect on the competition for locations in Europe in the future.
This is the conclusion reached by a new study conducted by the Vienna Institute for International Economic Studies on behalf of the consulting company TPA Horwath. The study looked primarily at unit labour costs and buying power in ten countries in Central and Eastern Europe: in other words, what the state collects in each case, take-home pay for individual workers, and what you can actually buy for that amount in various neighbouring countries.

In the case of unit labour costs, the differences are still huge. Unit labour costs in Eastern Europe are below those in Austria. People also earn significantly less, although their wages are increasing, and the amount they have left over varies.

insurance company

Well paid jobs at banks and insurance companies
In Austria, in 2010 average labour costs were EUR 3,966 a month. This put Austria streets ahead of Central and Eastern European countries included in the analysis. Slovenia, a model country in economic terms, has on average 44 per cent of Austrian labour costs. The earnings level in Austria here is 54 per cent higher than for the economy as a whole. Similar industry-specific differences can also be seen in Slovenia and Croatia. The earnings gap is considerably larger in all the other Eastern European countries studied: as much as 80 per cent in Poland and 143 per cent in Romania.
Net earnings: much smaller gap
However, a very different picture emerges in a comparison of average net earnings (gross wages after deduction of taxes and social security contributions) and real buying power – in other words, what people can buy with their incomes. Here it becomes apparent that the gap between Austria and the Eastern European countries is much smaller. For example, in 2010 the ratio of net earnings to so-called purchasing power parity in Slovenia was 63 per cent of the Austrian level (of EUR 1,800), followed by Croatia (59%) and the Czech Republic (58%). The level of net earnings was somewhat lower in Poland (53%), Slovakia (49%) and Hungary (42%).


Convergence of wages
The analysts extrapolated current trends from these varying costs and deductions: unit labour costs are rising steadily in Eastern Europe. In fact, despite everything, in almost all the countries studied this is happening at a faster rate than in Austria. As a result, wages are slowly converging on those in Austria. At present, average labour costs are 44 per cent of the Austrian level. Growing competitiveness is driving this primarily because Central European countries are increasingly using modern “western” technologies. Furthermore, Central European countries are gradually developing a strong industry that is far more productive than small businesses.
Receptive to investors
Finally, despite relatively high tax and contribution ratios, the institute’s experts found a striking receptiveness to investors in Central and Eastern European countries. For example, at the height of the prolonged global economic crisis, taxation policy raised value added tax rates rather than taxes on work.

garbage collection

There are still very significant differences in the case of direct taxes (such as income and corporation tax), the experts at TPA Horwath in Vienna concluded. In Austria, in 2009 direct taxes accounted for around 30 per cent of total taxes, which was however still below the average for the EU 27. Hungary was next, fairly well below Austria with a rate of 25 per cent of direct taxes in total earnings, then Romania, Poland and the Czech Republic between 24 and 21 per cent. Direct taxes played the smallest role in Slovakia (around 19 per cent). Trend: during the crisis, Eastern European countries tended to increase value added tax, while lowering income and corporate tax. This was a definite advantage for investors.

What is the politics of Slovakia and the Euro as well as the eurozone/EU

Sovereign euro Risk of Slovakia according to the rating agencies

September 2011 Sovereign risk Currency risk Banking sector risk Political risk Economic structure risk Country risk


Sovereign risk
Stable: The commitment to fiscal consolidation will remain strong, and debt levels should remain well below EU thresholds. 

Currency risk
Stable: Growing concerns regarding the solvency and competitiveness of some euro area members are potentially negative for the single currency. However, interest rate differentials should favour the euro in the short term.

Banking sector risk
Stable: Slovakia's banking sector is very conservative and very profitable but also very conservative in its asset allocation. The banking sector has been resilient to the aftermath of the global crisis of 2008-09. However, some foreign banks with branches in Slovakia could face distress because of the euro area crisis.

The Slovak capital Bratislava, the economic hub of the country

Political risk
The centre-right government looks less stable than its predecessor, but it is more investor-friendly. None of the parties likely to make it into parliament in a general election threatens Slovakia's international creditworthiness.

Economic structure risk
The economy's dependence on exports of automotives, machinery and electronics weighs heavily on the outlook for the economy, and could make medium-term growth more volatile.

Slovakia is led by a four-party, right-wing coalition, in which the largest party is the Slovak Democratic and Christian Union-Democratic Party (SDKU-DS the political party that brought about the 19% flat tax). The government has delivered pro-business changes that dilute workers' rights in the hope that will reduce the disincentives to hire people. This has dismayed many given widespread reform fatigue. Fiscal consolidation will be the main economic policy issue in the coming years.

The chances of the current coalition surviving until the election scheduled for 2014 are fair given that the overcast global environment does not favour major changes. But personal and programmatic clashes could bring it down before then. Real GDP growth is slowing in 2011 as the government is performing fiscal consolidation with a view to put aside funds in case there is a global crisis. Growth until 2015 will be slower than in the boom years but fairly fast in the chastened environment but at least this is not over levaraged unstable growth. Inflation is settling around 2.5% in 2012-15. The current account is expected to register deficits averaging around 3.4% in 2011-15.

Political outlook The centre-right ruling coalition turned one year old in July. Coalition parties have shown resilience despite frequent disputes. Disagreements between ruling parties could spill over in late 2011 when parliament debates the government's recent decision to sanction Slovakia's financial contribution to the European Stability Mechanism (ESM) from 2013.

Economic policy outlook
Slovakia's fiscal consolidation effort has been progressing in line with plans in 2011. At end-July the state budget posted a deficit of €1.67bn (US$2.3bn), 30.4% smaller year on year.

Economic forecast
In June seasonally adjusted industrial output fell by 2.2% month on month. The economic sentiment indicator (ESI; 2005=100), which had moved lower in the second quarter, after climbing in the first quarter, edged down further in July, dropping by 1.6 points month on month, to 93.9. This reflected weaker confidence in the industrial sector, owing to weakening demand of trade partners in the EU.

Slovakia Growth statistics Expenditure on GDP (% real change)

Slovakia Growth statistics
Expenditure on GDP (% real change)

light blue = 2011
darker blue = 2012
Private consumption
Government consumption
Gross fixed investment
Exports of goods & services
Imports of goods & services
Source: Economist Intelligence Unit


Origin of GDP (% real change)

light blue = 2011
darker blue = 2012
Source: Economist Intelligence Unit

Reuters: Credit agencies reaffirm and upgrade Slovakia

bratislava in august 2011
Moody's, which gives Slovakia an A1 sovereign rating with a stable outlook, said on Friday that Slovakia's access to money and bank reserves for any future turbulence are on the increase and reaffirm the country's stable outlook.

The central European country has not had to bail out any of its financial institutions because of the global financial crisis due to the conservative governance of the banking system, and its sound economic recovery, driven mainly by foreign demand, had helped keep banks sound.

"Continuing economic growth and decreasing unemployment have contributed to stabilising the stock of problem loans and to decreasing the loan-loss charges in Q1 2011, whilst macroeconomic developments will be the main driver of asset quality over the next 12-18 months," said Simone Zampa, a Moody's Vice President and senior analyst.

Slovak bank profits more than doubled last year, and Moody's expected this trend would continue, demonstrated by a 79.5 percent annual jump in profitability in the first half.
The Slovak central bank's stress tests in April showed an improvement in financial strength.

important graphs to understand which bits of the eurozone are healthy and which are not

Some essential numbers to help understand Slovakia

Graphs by Spiegel on Eurostat data:


AU Optronics - Taiwan in major investment in Slovakia

huge new factory making flat screens in Slovakia
The Prime Minister of Slovakia helps inaugurate the large investments of this Asian flat screen maker AU Optronics Corp. (ADR) (NYSE)

3000 jobs are expected to be created by this development as well as more at suppliers' plants.

In related news Deutsche Telekom Shared Services s.r.o. (DTSS) will gradually be expanded to support all Group subsidiaries in Europe. These will subsume functions from other regions and served from Bratislava.
By late 2015, more than 500 additional jobs are expected to be created in Bratislava.

(DTSS) will gradually take over tasks from the finance and accounting processes of all Deutsche Telekom subsidiaries in Europe. For this purpose, selected operations will be concentrated in Bratislava over the next couple of years.

DTSS began handling various accounting processes for the Group subsidiary T-Systems in 2006. The accounting services provider was known as T-Systems VICOS GmbH until 2009. Bundling international accounting tasks in Bratislava will support the standardization of internal processes in high quality and thus improve efficiency while also lowering costs. Today, DTSS and its 100 employees already provide services to 14 international and nine associated German companies.

Stefan Hofbauer, Managing Director of DTSS: "The planned expansion of Deutsche Telekom Shared Services s.r.o. reflects our clear commitment to our operations in Bratislava. In just a few years we will be the central European organization responsible for handling many of the Group's accounting tasks."

Deutsche Telekom is one of the world’s leading integrated telecommunications companies with around 128 million mobile customers, 36 million fixed-network lines and approximately 17 million broadband lines (as of March 31, 2011). The Group provides products and services for the fixed network, mobile communications, the Internet and IPTV for consumers, and ICT solutions for business customers and corporate customers. Deutsche Telekom is present in over 50 countries and has around 244,000 employees worldwide. The Group generated revenues of EUR 62.4 billion in the 2010 financial year – more than half of it outside Germany (as of December 31, 2010).

Who is doing well in the Eurozone and who is stagnating

Their Excellencies the ambassadors of Denmark, Norway and Netherlands to Slovakia are all female and cyclists

It seems to be consistently true, the more barbaric a country and the more dictatorial the leader the more he transports himself in self-important motorcades with massive police escort, big cars/limousines etc.

Bratislava's ambassadors from some other small EU states prefer the bicycle as you can see from the photo. This is great and it is an example that should be surely followed by others. Bratislava's mayor, Milan Ftacnik says he is a fanatic cyclist. He needs to prove it. Pedestrianise some car-clogged streets, ban cars from stare mesto completely, including those of local residents. The only cars should be allowed up the diplomatic hill. Anywhere in the centre from the Andrejsky cintorin and nivy, to the castle should be pedestrianised immediately.
Their Excellencies the ambassadors of Denmark, Norway and Netherlands to Slovakia are all female and cyclists

Meanwhile the re-enactment of the coronation of the Austrohungarian queens and kings in Bratislava is something you shouldn't miss if you are here, it is really great.

all austrohungarian kings and queens were crowned in Bratislava including empress Maria-Theresa

Geeky, how the new train station in bratislava will be linked up.

How the main train station will be connected to a new main train station called Filialka. The stops will eventually be Vienna, Hauptbanhof (new central station in Vienna being currently built) Flughafen Wien, Hlavna stanica (main train station in Bratislava), Filialka Bratislava Airport

The Slovak University of Technology Selects Geneza’s MediaINFO Server for Dissemination of Digital Textbooks and Notes

Bratislava, Slovakia
Imagine a university that gives all the study materials to its students electronically, imagine no more it is happening in Bratislava!

Faculty of Chemical and Food technology, one from the faculties of the Slovak University of Technology in Bratislava, the most significant technical university in Slovakia, has selected Geneza’s MediaINFO solution. This central European university will primarily use MediaINFO Server as the method of distributing digital books to its numerous students. Standardising on MediaINFO is going to help cut the cost, waste, and the physical constraints of the old paper textbooks and notes that are currently printed or bought.  
Additional benefits are the 24/7 online availability of the study materials and textbooks, which can be then linked, forwarded via email, printed, saved, annotated, or even translated automatically. MediaINFO is going to help sweep away the printed study materials in the university as well as the strain they place on the university library facilities. Normally an initiative that helps contain costs can hardly be expected to improve educational outcomes, but with MediaINFO the Slovak University of Technology is poised to achieve just that.  
The Chemical library (where implementation will take place first) was founded in 1955 and has developed into one of the most complete collections of chemical information in the world. The chemical library’s leadership extends in being a technologically astute organisation, and a pioneer in digitisation in Slovakia. In this spirit the students will be the first to benefit from the ability to use social networking tools in conjunction with MediaINFO as well as the collaboration tools that MediaINFO provides. The ability to work on assignments together using modern web tools is something that the students are also likely to encounter in their future employment. Becoming conversant with modern ways of digital working is a skill sought by employers so this will indirectly benefit the students too.
Jozef Dzivak, the director of University’s Chemical Library, said on behalf of the Faculty of Chemical and Food technology: “We anticipate that the successful implementation of MediaINFO will help us save time, effort and costs for ourselves and for our students. This is a good application of technology that solves a number of practical problems in the real world. We are making MediaINFO our university system because it maximises access to the study materials, makes them easy to search, print and study from. But one of my favourite outcomes is the first real reduction in hundreds of thousands of pages that are routinely thrown away and reprinted either because the textbooks have been updated or because the paper copies become damaged or lost. MediaINFO will help us do our bit for the environment”. 
Sasa Mutic, chief executive officer at Geneza, said, “Organisations today are challenged by inefficiencies and a lack of easy accessibility to their content both internally and externally. It is often underestimated how many resources are wasted in activities such as photocopying or printing information, especially time. MediaINFO helps optimise processes inside an organisation leading to a boost in communication, effectiveness, speedy and modern transfer of information irrespective of working hours, distances, or other constraints. The granular control of rights also allows the university to stay in control of its intellectual property”.

About The Slovak University of Technology in Bratislava ( “STU”) & the Slovak Chemical Library  
The STU is a modern educational-pedagogical and scientific-research institution and the biggest technical university in Slovakia. Since its establishment in 1937 more than 112,000 graduates have completed their education at STU and annually an average of 19,000 students study at the university.
STU currently consists of 7 Faculties and 2 institutes, offering accredited study programmes for Bachelors, Engineering (Master) and Doctoral study.  
The Chemical library was founded in 1955 as the Library Centre at the Faculty of Chemical and Food technology Slovak Technical University in Bratislava. After various changes culminating in its current status since 2004 the library has become a major driving force for digitisation and computerisation of processes in the Slovak academic community.

About MediaINFO
MediaINFO is a complete software solution for intuitive viewing, browsing, searching, cataloguing and sharing digitized content. MediaINFO is powering some of the world's most prestigious libraries, publishers, educational institutions, and magazines. MediaINFO helps organizations utilize and re-use their content more effectively by leveraging past investments in content and re-purposing them for new audiences.
Find out how it can help your organization by visiting 
About Geneza
Geneza develops solutions for organizations seeking to better present, control, search and manage their content. Whether your content is still only in physical form, partly digitised, in PDF, ALTO/METS, flat tiff; we can provide an end-to-end solution that will cover your requirements. Geneza is trusted by some of the world's largest and most respected libraries, academic institutions including the Library of Norway, the Swiss Institute of Comparative Law, École polytechnique fédérale de Lausanne and others.

Mailing Address
Champs Courbes 23
1024 Ecublens

Almost 40% of big business in Slovakia wants to hire and expand

Bratislava's Eurovea. Bratislava's downtown is buzzing
with activity and growth. 
Foreign investors operating in Slovakia believe the economic crisis is ending and expect their businesses to flourish in the coming months, according to an economic sentiment survey conducted among 166 investors from other European countries undertaken by seven foreign chambers of commerce in February and March 2011, Slovak spectator reported on 8 April.

Almost two thirds of investors in Slovakia expect the economic environment to improve significantly over the course of 2011.

Nearly 39% of the surveyed businesses said they will be looking to hire more employees this year.
We are optimists now too, since movement has returned to the Slovak economy, said Vladimír Slezak, the general director of the Bratislava-based branch of Siemens.

IMF on Slovakia and its economy

Bratislava, April 11, 2011
Slovakia has swiftly recovered from a deep recession, and is facing a favorable medium-term macroeconomic outlook, with real GDP projected to grow by around 4 percent per year. The policy focus should shift from crisis response to enhancing the foundations for long-term growth and stability. The main challenges will be to correct the crisis-induced underlying deterioration in the fiscal position, prevent credit boom-bust cycles, reduce the high unemployment and maintain strong productivity growth. Following important fiscal adjustment this year, consolidation will need to continue during 2012–13 with a view to bringing the government deficit below 3 percent of GDP in 2013. Achieving this challenging target will require a careful consideration of the composition of the adjustment efforts.
Outlook: a return to steady and robust growth
1. The Slovak economy has continued to recover since early 2010. Following a deep recession in 2009, real GDP swung to a robust 4 percent growth in 2010. The upturn has been larger than in most of Slovakia’s neighbors reflecting strong fundamentals and a surge in the export-oriented manufacturing sector, which benefited from a revival in global demand. In tandem, the financial sector has regained strength, profits in the corporate sector are recovering, real estate prices have stabilized, and the fiscal position is improving.
2. The growth outlook for 2011 and the coming years is strong. While growth will still be driven mainly by the export sector, a gradual rebound in domestic demand would provide some boost and broadly offset the withdrawal of fiscal support. As spare capacity diminishes and confidence firms, employment and private consumption will start to improve, albeit gradually. Overall, real GDP is projected to grow by about 3¾ percent in 2011 and by about 4¼ percent in 2012–15, among the strongest performances in the European Union (EU) but still significantly below the pre-crisis rate of expansion.
3. Inflation is projected this year temporarily to increase to about 3½ percent. Reflecting higher international oil and food prices, and an increase in VAT and excise taxes, inflation surged in early 2011. However, as core inflation remains well-anchored, headline inflation is projected to decline to below 3 percent in 2012 and beyond.
4. Downside risks remain considerable and are both external and domestic in nature. The global economic environment continues to be challenging, including on account of possible loss of market confidence related to adverse feedback loops between sovereign and bank risks, Mideast political turmoil, and uncertain oil and other commodity prices. Domestically, a renewed decline in real estate prices and a loss of fiscal credibility, if the government fails to achieve the targeted fiscal consolidation, are the main risks.
The policy agenda: from crisis response to growth and stability
Fiscal Policy: bringing the deficit below 3 percent of GDP in 2013
5. In spite of the recovery, the general government deficit remained high in 2010, at 7¾ percent of GDP. The deficit had widened to about 8 percent of GDP in 2009, as revenue contracted sharply and spending continued to expand at a fast pre-crisis pace. Reflecting the export-led recovery, revenue growth in 2010 fell short of GDP growth. With expenditure and output growing broadly in line, the deficit was almost unchanged from its 2009 level.
6. The 2011 deficit is projected to decline to below 5 percent of GDP on the back of a welcome consolidation effort and further economic recovery. The size of the adjustment, around 2½ percentage points of GDP, and its composition are broadly appropriate. Implementing the planned expenditure cuts in full, particularly with regard to wages and municipal spending, may prove to be difficult. However, some higher-than-budgeted revenue on account of the improved economic conditions would help offset expenditure slippages.
7. The authorities’ commitment to reduce the deficit to below 3 percent of GDP by 2013 is credible and appropriate.Adhering to this anchor, in line with EU requirements, will help maintain market confidence and keep Slovakia’s interest premium low. The deficit should be further reduced to about 1 percent of GDP in the medium term. This will help prepare for aging-related expenditure pressures, and provide some room for counter-cyclical fiscal policy in case of a downturn.
8. The intention to reduce the deficit by around 1 percentage point of GDP each year in 2012–13 strikes the right balance. Pacing the adjustment will help minimize the adverse impact on growth and avoid recourse to lower-quality and possibly unsustainable measures. Nonetheless, the adjustment efforts needed to meet the 2013 deficit target will be challenging.
9. The authorities’ fiscal policy priorities should guide the composition of the 2012–13 consolidation efforts. Priorities could include supporting growth through infrastructure investment and education, reducing the high unemployment and income disparity across regions, and strengthening the efficiency of the tax system. In addition, improving the quality and ensuring the financial soundness of the health care system remains a standing priority.2
10. Simultaneously achieving these priorities and the consolidation targets will require broad-ranging revenue efforts and expenditure reallocation and cuts. Only raising some minor taxes and concentrating the expenditure efforts on cutting wages and operational costs may not be sufficient, and may erode some essential government services to unsustainably low levels. Given the large consolidation needs, there is no room for premature tax cuts or for additional spending without re-prioritization. It will also be important not to slow or postpone key public investment projects and to strengthen EU funds absorption capacity.
11. Initiatives to harmonize and simplify social security contributions and unify revenue collection are welcome.They could be complemented with efforts to broaden the tax base and improve the efficiency of VAT collection. However, net revenue gains from harmonization, unified collection and improved VAT administration could be slow to materialize and should not be expected to contribute to the 2012–13 consolidation effort. In this regard, it would be preferable for recently announced proposals to reform the social security contributions system to remain focused on the main objectives of simplification, transparency and reduced incentives to opt for self-employed status, while maintaining broad revenue neutrality.
12. The authorities’ fiscal institutional reform plans are expected to improve commitment, discipline, transparency and planning. Laudable efforts to seek a broad consensus on such important reforms as introducing debt and expenditure ceilings and establishing a fiscal council can help ensure their durability. A well-designed ceiling on overall expenditure growth could be especially useful for guiding the fiscal consolidation in the next few years and for facilitating spending reallocation in line with evolving priorities. In the context of the envisaged fiscal institutional reforms, putting in place an effective medium-term budget framework would support planning and prioritization. Further improving the timeliness and quality of fiscal information would enhance transparency. Proposals to strengthen fiscal discipline at the local level could be complemented with incentives to raise real estate taxes.
13. The plans to ensure the sustainability of the pension system are welcome. Automatic alignment of the retirement age with changes in life expectancy and in the old age dependency ratio and adjustments in the indexation formulas could help ensure the viability of the first pillar. As to the second pillar, relaxing the restrictions on investment policies would increase the range of products available to savers and better align saving and investment objectives and horizons, and is an immediate priority. In addition, maintaining a sufficient contribution rate and promoting the participation of new labor market entrants would help support this pillar.
Financial Sector: strengthening safeguards and promoting further capital market development
14. The financial sector has strengthened further. A traditional banking model with a large deposit-to-loan ratio and limited investment in risky securities helped banks withstand the global financial crisis. With the improvement in economic conditions profits have rebounded. Financial soundness indicators are solid, and recent stress tests carried out by the National Bank of Slovakia reassure that banks can cope with severe shocks to economic growth and inflation.
15. Nevertheless, risks remain and continued vigilance is needed. In particular, the commercial real estate and construction sectors remain fragile. Moreover, banks could be affected in case of renewed financial turmoil in the euro area through the impact on parent banks, even though domestic direct exposure to foreign securities is limited. To reduce these risks, the authorities should continue improving coordination and collaboration with neighboring countries and home supervisors of foreign banks. Indications of intensifying competition, relaxation of lending standards and accelerating credit growth should be carefully monitored.
16. The authorities should harmonize the different treatment of housing loans to avoid regulatory arbitrage.Banks are substituting traditional mortgages with other housing loans that are subject to weaker regulations and allow for higher loan-to-value ratios. Harmonizing the different treatment would ensure that regulation aimed at limiting excessive risk taking remains effective. To improve consumer protection, steps to increase the transparency of housing loans with regard to interest rate adjustments would be welcome.
17. The authorities should explore ways to deepen the secondary government bond market. This can lower interest rates and help develop the capital market overall. Steps taken by the debt management agency to increase issuance size and focus on benchmark instruments are welcome. Establishing an effective primary market dealer arrangement and relaxing investment restrictions on pension funds could provide additional liquidity to the market.
Labor Market and Other Structural Policies: tackling high long-term unemployment and maintaining strong productivity growth
18. In the wake of the crisis, addressing long-term unemployment and regional disparities is even more pressing. Long-term unemployment of low-skilled and young workers has risen to among the highest in the EU. Less prosperous regions are particularly affected. The economic recovery and incipient rebound in employment had little impact, so far, on prospects for the long-term unemployed.
19. Bringing down long-term unemployment will require a range of measures. Various new initiatives considered by the authorities—including linking social benefits to training and job search efforts; expanding intermediate labor market opportunities; and selectively increasing labor market flexibility—are welcome. However, they need to be complemented with steps to enhance some existing active labor market policies, and with appropriate funding to ensure implementation and program evaluation. Improving the transport infrastructure and fostering the development of a private rental market could help ease labor mobility constraints.
20. Productivity gains remain the main driver of medium-term growth potential and convergence, and the key to preserving external competitiveness. Boosting productivity will require sustained efforts to further reduce administrative burdens; to enhance the transparency of public procurement, in line with welcome recent initiatives; to strengthen legal enforcement; and to promote competition in network industries. Labor market flexibility in combination with wage growth moderation should help maintain the strong performance of Slovakia’s main export sectors.

1 The mission wants to thank the Slovak authorities for their hospitality and the open and constructive discussions.
2 Health care reforms could be guided by earlier IMF advice and recent OECD recommendations.

Pre-2008 economic crisis level of economic confidence in Slovakia

Slovak business confidence has just reached its pre 2007-8 worldwide economic crisis levels. This is quite an achievement given that this is not the case with most other european states with the notable exception of Germany.

According to PriceWaterhouseCoopers and Forbes, and in a study they commisioned. The CEOs of companies in Slovakia perceive the business environment in Slovakia as positive or satisfactory, 44 percent of those polled said they had good reason to expect their revenues to rise within the next twelve months. “It is very important, how the companies active in Slovakia see the development of their future growth. The fact that they
do perceive it positively is a good signal for the future of the Slovak economy,” said Alica Pavukova, a PwC partner.

Investment comes to Slovakia

GERMAN COMPANIES TO CREATE 10,000 NEW JOBS German companies expected to create some 10,000 new jobs at its Slovak units this year, welcoming planned changes aimed to boost the labour market flexibility making Slovakia a more attractive investment spot, a survey by investors showed. Hospodarske noviny, page 1

HEWLETT PACKARD WANTS TO HIRE NEW WORKERS The U.S. Hewlett-Packard Co.(HPQ.N) said it wants to hire hundreds of new workers to boost its Slovak unit to around 2,000 by the end of the year. The company operates a service centre for the region in the central European country. Hospodarske noviny, page 1

SLOVAK KIA LURES NEXT INVESTOR Spain company Grupo Antoliny, a supplier of South Korean car maker Kia Motor (000270.KS), wants to build an assembly plant with 120 jobs near Kia's Slovak unit in northern town of Zilina, a ministry report showed. Hospodarske noviny, page 15

Digital books transform the way slovak students get study materials

I saw it recently in a demo and I think the SLOVAK TECHNICAL UNIVERSITY is now light years ahead in how it communicates with it's students. You rarely see situations when tech actually helps solve a real world problem , improve on the way it was done before, make both ecological and money savings as all this stuff was printed paper before.

The demo here is generic but this is how students at the Slovak technical university in Bratislava will get their study materials.

As far as I know only this university has such a modern system, but this is not developed internally.

GDP per inhabitant (EU average=100)

GDP per inhabitant (EU average=100)
1Inner London (UK)343334336303
2Luxembourg (LU)279275267264
3Bruxelles-Cap. / Brussels Hfdst. (BE)216221233241
4Groningen (NL)198165174164
5Hamburg (DE)188192200202
6Praha (CZ)172172162160
7Île de France (FR)168169170173
8Stockholm (SE)167165166172
9Bratislavský Kraj (SK)167160149148
10Wien (AT)163163166178
11Oberbayern (DE)162165168166
12Bremen (DE)158159157157
13Utrecht (NL)157155156158
14North Eastern Scotland (UK)157153153n/a
15Darmstadt (DE)156156158158
16Berkshire, Buckinghamshire & Oxfordshire (UK)154156164168
17Noord-Holland (NL)152151151155
18Hovedstaden (DK)152150155161
19Southern & Eastern (IE)148166163158
20Åland (FI)145143147140
 Source: Eurostat, based on purchasing power standards (PPS)