Connect to share and comment

'Europe's Detroit' skids

In the economic downturn, the wheels have come off of Slovakia's auto-dependent economy.

As the car industry has slowed, the economy has gone into free-fall. Initial predictions called for the economy to grow by 6.5 percent, but now the government thinks the economy will contract by 6.2 percent — one of the steepest declines in the European Union.

The slump has made the government very aware of the dangers of being over-reliant on a single sector.

“About 85 percent of our GDP comes from exports, and we are almost solely dependent on foreign demand. If Germany has difficulties then we will have difficulties,” said Jan Pociatek, Slovakia’s finance minister. “No economy should be this focused on a small amount of sectors — there should be a wider range of products. We have to learn the lesson from this, being as dependent on the auto sector as we are is not good.”

The gloom from the car sector is steadily seeping through to the rest of the country. For much of the 1990s Slovakia felt like a backwater as it watched the rest of the countries in its region join NATO and make strides toward being admitted to the EU. The economic revolution of 1997 finally allowed Slovakia to begin to catch up to the rest of central Europe, and particularly the Czechs, for whom Slovaks feel a mix of affection and rivalry. Then Slovakia’s rapid development and its economic reforms in the past decade made it a model for the rest of the region, and its front runner status was confirmed on Jan. 1, 2009, when it became the first former Soviet satellite to adopt the euro as its currency.

Now the country is worried about again falling behind the other countries of central Europe — especially those like the Czech Republic and particularly Poland, which are coming through the downturn without too much damage.

The government is mulling increasing some taxes, which economists warn could undermine the country's hitherto successful flat tax model. Doing nothing also carries dangers as voters are becoming more irate at the frequent corruption scandals affecting senior government officials.

Despite the unexpected raft of problems, Slovakia, with its well-manicured Austro-Hungarian capital, new highways and relatively solid real estate market is a world away from the crisis besetting Detroit.

While Europe’s carmakers have been hit by the downturn, none of the manufacturers present in Slovakia are having the problems experienced by Chrysler and GM, and they have no intention of backing away from their investments in Slovakia.

“We are in the middle of a crisis but we have brilliant future here,” said Andreas Tostmann, president of Volkswagen Slovakia.
 

http://www.globalpost.com/dispatch/europe/090812/slovakia-auto-industry