Tensions within the coalition on Euro bailouts
Overview:
The unity of the governing coalition is being tested by the need to approve extra powers for the new Euro area bailout mechanisms. The SaS party is arguing that Slovakia should not help bail out profligate (richer) countries while itself undergoing significant fiscal tightening. Most likely this issue will not bring the government down but approval of these measures will be delayed until October. The economy is growing solidly but a combination of tighter fiscal policy and a slowing global economy will likely lead to some deceleration in growth in H2. Previous FDI inflows have helped form a strong export base and weak domestic demand is also keeping the current account deficit small. The real effective exchange rate is competitive.