Slovak leftists take power, commit to austerity

BRATISLAVA (Reuters) - Slovakia’s centre-left leader Robert Fico was sworn in as prime minister on Wednesday and vowed to rein in the small nation’s widening budget deficit and commit to austerity.

Slovakia's new Prime Minister and leader of the left-wing Smer party Robert Fico attends his appointment ceremony at the Presidential Palace in Bratislava April 4, 2012. REUTERS/Radovan Stoklasa

The 47-year-old Europhile and his Smer party swept to a landslide victory in a March election, ousting the centre-right government of Iveta Radicova, which had collapsed in October in a row over beefing up of the euro zone’s bailout fund.

The euro zone’s second-poorest member has pledged to cut its fiscal deficit to below the EU’s threshold of 3 percent of gross domestic product next year, and Fico promised to make good on that promise.

“The government must, in the interest of the country and also because of a risk of international sanctions, respect a commitment to cut the deficit to below 3 percent in 2013,” Fico told reporters after he was appointment by President Ivan Gasparovic.

It is Fico’s second stint in power, after he led Slovakia into the euro zone during his 2006-2010 term.

He promised that fiscal consolidation would not harm the poor, saying the wealthy should give more.

“We will make every effort to prevent fiscal consolidation from threatening the living standards of the poor. We want to protect them and expect more solidarity from the stronger ones,” Fico said.

Bratislava wants a deficit of no more than 4.6 percent of GDP this year, down from 4.8 percent last year, with Fico considering tax hikes as the best option to meet this goal.

The new government has 30 days to draft its program and submit it to parliament for approval, traditionally tied to a confidence vote.

Fico, supporting a strong hand of the state in the economy and advocating tough regulation of retail utility prices, told Reuters after his election victory that his government would be ready to cap spending to hit the budget deficit target, which is threatened by lower economic growth.

The new government plans to raise corporate tax for larger firms by three points to 22 percent, kill the flat personal income tax by introducing a higher bracket for top earners, raising a special banking tax and raising property taxes on the wealthy.

New Finance Minister Peter Kazimir said he would prepare measures designed to narrow the budget deficit, which nearly doubled on the year in the first three months of 2012, climbing to 1.155 billion euros ($1.54 billion) or 31 percent of the country’s full-year goal.

Moody’s, which downgraded the heavily export-reliant country by one notch to ‘A2’ in February mainly due to impacts of the bloc’s debt crisis, warned Slovaks to stick to consolidation targets or risk further downgrades.

“Smer’s fiscal consolidation track record from 2006-2010 is far from impressive. In 2009, the SMER-led government failed to avoid a significant widening of the fiscal deficit to 8.0 percent in 2009 from 2.1 percent in 2008 as the global economic crisis hit the Slovak economy,” said Eduard Hagara, senior analyst at ING Bank in Bratislava.

“However, this time, Smer could be more disciplined because of stricter European fiscal rules, tougher financial markets stance. And the economy is expected to perform better than in 2009,” he added. ($1 = 0.7497 euros)

Editing by Alessandra Rizzo