Crisis in Slovenia: from “gradualism” to “colonization”
Slovenia entered EU in 2004 as one of the most successful EU-candidates. At that time, Slovenian government debt was a little more than 20 per cent of GDP, one of the lowest ratios among the EU member states; the country had surplus in the net international investment position. The fact that Slovenia opted for gradual privatization in the 90-ies and that some sectors or companies remained in the state ownership cannot explain the present difficulties of Slovenian economy or the increase of public debt. Present difficulties were generated during the period of Slovenian EU and Eurozone membership: they originate in the unregulated financial sector, monetary politics, salvage of the banks by public funds. When difficulties begun, Slovenia has been an easy target of speculative financial markets, like other indebted countries. Having entered EU without deadweights from the past, Slovenia is a good example to show to what extent EU policies may contribute to the deterioration of economic and social development of a country. If we are not going to learn from this and eliminate the causes of the crisis on the level of EU, we will never find a stable way out of the crisis.
The difficulties started in 2004 when western capital, fleeing from low profit rates in the West, overflowed Slovenian banks. The indebtedness of usual suspects, the state and the households, remained low and almost negligible during the period 2004–2008. The thesis that considers the presumed immoderate consumption of the state and households to be the generator of economic crisis is false in the case of Slovenia. “Cheap” money available generated a new wave of privatisations, the second after the independence of Slovenia in 1991. Many top managers took this opportunity to attempt a buyout of the companies they managed. However, with the outbreak of the economic crisis in 2007-2008, companies could not have been skimmed for the payment of the credits any more. Buyout-schemes disintegrated and the “tycoons’” little empires sank. Due to the loose control over the banks and the financial system, credits were delivered to clients without due precaution. Some credits were given for real investments: however, because of economic recession enterprises now have difficulties to repay their debts. Many debts will not be repaid as the debtor companies have gone bankrupt (esp. in the construction industry, enterprises owned by Slovenian Catholic Church etc.). Between 2008 and 2009, when deleveraging of the private sector started, the public debt started to grow, an indicator that the debt of the private sector has progressively been transferred to the public budget.
Slovenia faces similar problems as the bailed-out Eurozone countries (Greece, Portugal, Spain, Ireland and Italy): recovery from the economic crisis and the attempt of fiscal consolidation has failed. Countries still have negative economic growth with modest recovery in Ireland as an exception; forecasts for the next year are poor. The objective to repay their debts is now less attainable than before. Countries are trapped into the vicious circle of an increasingly expensive borrowing and a decreasing economic growth: their combination generates increasing unemployment and impoverishment. The situation that is emerging has historical precedents known as “development of underdevelopment”.
It is against any sense of justice that people with low income pay for the mistakes of rich capital owners. This is actually what austerity measures and salvaging of the financial sector are about. Before the crisis, the risk of poverty rate was considerably low in Slovenia, while in the period 2008–2011 it noticeably increased in comparison to other EU countries (Eurostat). In 2012, the new law called Exercise of the Rights to Public Funds Act deprived 185.000 persons of their previous social benefits. The benefits that have most often been annulled were child benefits and scholarships. The savings amounted to 102 million euro (if compared to the social welfare spending a year before; source: Računsko sodišče).
Salaries in the public sector were stagnant from 2009 on, and started to decrease in 2012, while salaries in the private sector have stagnated since 2012 (source: Umar – Government Office for Macro-economic Research). The minimum wage is every year raised proportionally to the growth of prices; it is an important factor of the income equality and has so far remained unchanged. During the period 2010-2012 the number of employed persons receiving a minimum wage has tripled. It is important to note that a person living alone and having no other income but the minimum wage is exposed to the risk of poverty. In 2012, 83.000 persons, i.e., almost 12 per cent of all the employed persons, received an income that was below the risk of poverty threshold (source: SURS – Office of Statistics).
Employers and politicians often present two arguments that presumably explain why Slovene economy is weak: social contributions and taxes on wages are too high and the employment protection is too rigid. None of the two arguments is true. The implicit tax rate for labour is, in average, 2.5 point lower than in other Eurozone countries. The implicit tax rate for capital is 3.4 points lower than in other Eurozone countries, so the owners of capital already have quite comfortable provisions in Slovenia (Eurostat). The employment protection of regularly employed workers is considerably higher than in other OECD countries; however, flexible employments have particularly increased during the crisis and they already exceed 40 per cent of all the active workforce. Simultaneously, the capacity of state institutions to sanction and to prevent the abuses of Labour Law (including forms of slave labour) has importantly declined. As a result, companies which respect Labour Law have to compete with companies do not and consequently have lower production costs. So the law-abiding companies become “uncompetitive”; it follows that progressive erosion of labour rights is inevitable. Therefore the reduction of labour rights and labour costs is no solution, since it leads towards the race to the bottom that has no end.
We have no time to describe the impact of austerity measures upon public services. To conclude, we wish to emphasise that after the launch of severe austerity measures Slovenia is a much less democratic society than it was few years ago. In 2011, about 100 new laws were adopted by the fast procedure. Many of these laws retroactively deprived people of their already acquired rights (like pensions), and the Constitutional Court already decided upon the unconstitutionality of some of these measures. On 31 May 2013, the articles 90, 97 and 99 of Slovenian’s constitution were amended to deny the people the access to referendum when fiscal questions or ratification of international agreements are at stake. In September 2013, a severe punishment of protestors, sentenced to 7 months of prison for having manifested in the streets of Maribor, was a warning to others who may consider attending protests in the future. One can understand why people are demoralised.
Meanwhile, the European institutions look away, pretend that Slovenian problems are not a result of their past politics and deliver advises how to “reassure financial markets”. They offer a simple alternative: immediate socialization of banks credits (i.e. the risk should not be returned back to private money-lenders neither the debt can be even partially abolished), further reduction of public spending and new austerity measures as well as privatization of financially consolidated banks and companies in the state ownership (IMF, Slovenia 2013 Staff Visit, March 2013) – or a bailout under the same or even worst terms of Troika.
To summarize, Slovenia will have to give up to gradualism and social welfare, the policy which brought Slovenia into the EU as a prosperous society with a high social equality. New austerity measures will lead to a greater economic recession and social turmoil. By way of austerity measures, Slovenia will have to submit to “shock therapy”, although Slovenian gradual economic policy before 2004 is a good example that there is a better alternative. The country will be destroyed in order to minimize resistance and maximize profits for capital owners. In the long term, Slovenia will become a net exporter of capital and will be incorporated into colonial interrelations within the EU.
It is important to note that also corruption of local and state officials multiplied after the entering EU. It is a sign that corruption is not a result of poor local business culture: the present accumulation of capital regime boosts extra-exploitation and corruption. It puts no obstacle to management’s buyouts, private-public partnership, downgrading of workers’ rights, and misuses of financial instruments which generate mismanagement and corruption. Furthermore, governments and political elites are also pulled into this corruptive environment. EU consists of “national economies” that have neither economic nor political independence. The effect of such structure is that member states compete with each other in domains still under their sovereignty: by downgrading the standards of welfare state, rule of law, social and workers’ rights, while, at the same time, they have to relieve the capital owners from the economic risks (by privileges, subsidies, and even socialization of private debt). It is therefore necessary that political groups collaborate with capitalist class and the range of their politics is drawn to their function of local compradors.
Our politicians are obviously without any political imagination in the midst of class and colonial war. We have, on the other side, nothing to lose.
Maja Breznik
October, 2013