January 11, 2019 / 10:18 AM / 4 months ago

Slovakia faces trap of weak growth: ECB's Mersch

BRATISLAVA, Jan 11 (Reuters) - Slovakia is at risk of falling into a trap of weak growth unless it tackles a long list of challenges such as corruption, low investment and productivity growth, European Central Bank board member Yves Mersch said on Friday.

Once one of the poorest members of the euro zone, Slovakia has taken leaps in catching up to western peers but concerns have grown in recent years that corruption and political gridlock are derailing convergence and discouraging investment.

“Slovakia risks falling into the so-called middle-income trap, whereby middle-income economies tend to follow a lower growth trajectory,” Mersch said in a rare criticism of a euro zone member.

“Factors such as inefficient public administration, weak control of rent seeking, tax evasion and corruption hamper competition and economic inclusion,” Mersch said at a conference celebrating Slovakia’s 10 years in the euro zone.

Slovakia’s political establishment was shaken last year by the biggest protests since the fall of communism three decades ago.

The protests, triggered by the murder of journalist Jan Kuciak, who investigated political corruption and EU subsidy fraud, eventually led to the resignation of long-serving prime minister Robert Fico. He was replaced by party ally Peter Pellegrini without a snap election.

Mersch said Slovakia ranks below its euro zone peers according to the most commonly used institutional governance indicators and reform momentum appears to have slowed after the euro was adopted.

Mersch also stressed the need to safeguard central bank independence as European monetary policy needed to coexist with national financial and labour market policies, even if these interests are not always aligned.

Slovak central bank governor Jozef Makuch, an ECB policymaker, announced plans last year to quit the post early and finance minister Pater Kazimir is expected take over at the bank in the next few months. (Reporting by Balazs Koranyi and Tatiana Jancarikova; Editing by Susan Fenton)

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