Slovak squeeze: paying to be the adult in the room

DETROIT -- On Thursday, Slovakian lawmakers reversed themselves and stopped blocking the plan to expand the European Union’s bailout fund. Now the EU can boost the 440 billion euro ($600 billion) fund, its main weapon against the debt crisis.

The other 16 countries in the eurozone had already approved expanding the fund’s size and powers, but Slovakia had not. Under EU rules, financial decisions must be unanimous.

From the outside, and likely from the perspective of many larger and older democracies in the eurozone, Slovakia’s action is the overdue correction of dangerous and wrong-headed irresponsibility.

I disagree. Slovakia is being responsible -- again. And once again, the cost of being the adult in the room is pretty steep.

The situation Slovakia faced was a stinker. If the EU bailout fund can’t handle the debt crisis, then all of Europe, and perhaps the globe, will likely be plunged into a deep recession. Worse, the crisis could unravel the eurozone’s common currency -- and the euro is the foundation of Slovakia’s entire post-Iron Curtain recovery strategy.

So really, Slovaks had to buy into the bigger bailout fund. But they didn’t have to like it.

Their beef: First, that Slovaks are paying the same per capita as others into the fund even though their incomes are about a third the Eurozone average. And second, they’re bailing out eurozone members that broke the same rules those members imposed on Slovakia to join the euro club in 2007.

In human terms, the waiter just brought the dinner bill after the big European banquet. And Cousin Dusan, who ordered the burgers and beer he could afford, is steamed all the rich older cousins are passing the hat to cover the tab for Uncle Niko, who ordered lobster and champagne but blew his dinner cash making the down payment on a new yacht.

Slovakia, our Cousin Dusan, is a hard worker in a humble neighborhood. He knows tools and manufacturing, because he can’t farm much in a country that is 70 percent mountains.

And in the two decades of democracy, Cousin Dusan has made one tough choice after another to focus his modest capital and resources on attracting the auto industry and building infrastructure to support it. If this was poker, Cousin Dusan is all-in on the auto industry.

The strategy has worked. Slovakia has three massive auto assembly plants: A Volkswagen/Audi/Porsche plant in Bratislava, a PSA/Peugeot-Citreon plant in Trnava and a Kia plant is Zilina. Slovakia built 556,000 light vehicles last year. With 5.5 million residents, that’s 103 per 1,000 residents, more per capita than Germany.

The PSA and Kia plants came after Slovakia (and nine other central or Mediterranean countries) joined the EU in 2004. Like Poland, Hungary and the Czech Republic, Slovakia earns automotive investment with geographically proximity to Western Europe, really low wage rates, paying manufacturers the biggest incentives the EU will allow to relocate, and building roads, railways and power grids like mad. And the formula still only works because everything Slovakia does is euro denominated.

That’s a big price for jobs, and it doesn’t count other sacrifices. When I visited the PSA construction site at Trnava in 2004, the French contractor pointed out a young, very earnest Slovak. Translated, he was the dirt boss. His job was to make sure PSA scraped every last speck of top soil off the site, one of the few big, level sites in the country, and shipped it to nearby farmers so they could improve their mountainous plots. Top soil is, by law, a national treasure is Slovakia.

And the Kia plant in Zilina busted the Slovakia foreign investment budget for years. I never did learn if the then-foreign minister was actually jailed for promising to widen the road to Zilina, but he sure was fired for grossly underestimating the cost. It takes a bundle to turn 40 miles of mountain goat trail into a heavy-truck corridor for auto parts. And Slovaks aren’t rolling in dough.

So the prospect of paying roughly $2,000 a person -– got three kids? Ten grand, then -- to pay off the bar tab for playboy relatives did create a brief mutiny in parliament. A minority-party member of the ruling coalition balked.

Slovakia fixed it, but only by dissolving the cabinet and calling for early general elections next March to get the votes of a different minority party.

That’s right. To protect its massive bet on the auto industry and the euro, Slovak leaders deliberately brought down their own government.

Sometimes, there’s a big price to pay to be the adult in the room.

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