Slowly but surely Slovenia must get radical

By Robert Cottrell

Date: 03/03/05

Wilder Europe, meet milder Europe. If Ljubljana was any easier to spell, we might all want to live there. The capital of Slovenia, it blends the primness of Austria to the north with the zest of Italy to the south.

There is a decent hotel (the Grand Union), a colonnaded market by the river, a stone bridge guarded by dragons, a castle on a hill, and a picture-perfect historic centre. Imagine Salzburg infilled with street corners from Prague and Venice. The beer is honest, the wine is local, the national hobby is bee keeping. The pavements are so clean that you feel you should be taking your shoes off, not putting them on, when you go outside. There is even a comic currency, the tolar, pegged at 236 to the euro. What's not to like?

No doubt it all looked and felt rather different in 1991 when Slovenia emerged from a brief but bloody war with Serbia, the first Yugoslav war of succession. But after that Slovenia was an independent country, free to turn its back on the Balkans, pull out its Hapsburg heirlooms, and rejoin central Europe.

The Balkans are still only a few miles down the railway line. But these days Slovenia sees them more as an opportunity than a threat. Its companies invest busily there, especially in Bosnia and Macedonia. Its diplomats look beadily at Croatia, which hopes to start EU accession talks this month (March). Slovenes and Croats get on frostily, and squabble still about borders. Slovenia says it supports Croatia's bid to join. But it will be a tough judge of Croatia's readiness.

Ask the Slovenes how they feel about their own entry into the European Union last year and they will tell you that they scarcely noticed it. They were "old Europe" before the distinction was invented.

Their political instincts, their economic policies, even their economic problems give them more in common with Germany or Austria than with Estonia or Slovakia.

Theirs was the richest society in the communist block, and when communism collapsed, their motto was "gradualism". Other post-communist countries plunged bravely into half a decade of mass privatisations and banking crises. Slovenia changed as little as it possibly could.

When companies were privatised, managers kept control but shared ownership with investment funds. The state propped up sick banks while sorting out their problems. Workers kept on working as before, cushioned by generous welfare schemes and strict labour laws.

Gradualism succeeded because Slovenia's economy was in good shape to start with. There was plenty there worth saving.

But gradualism, even when it takes you in the right direction, moves slowly at best. Slovenes look on nervously nowadays as their central European neighbours emerge from the turmoil of the past decade with leaner and faster-growing economies.

To compete, Slovenia needs a touch more radicalism. The election of a centre-right government late last year, after a string of centre-left ones, was a signal of public impatience.

Slovenia's public services and social security schemes are popular and well managed, so changing them will be unpopular. But it will also be necessary. They and other fixed obligations eat up 80-90% of government spending. Too little is left for investment, even with a total tax burden close to 40% of GDP.

The new government is hesitating, which is the wrong course. It needs to act quickly and confidently, so that reforms pay dividends before the next election. Slovenia is a small country, which makes change easier to manage.

It is also a country which got rich under communism. Any place which can do that has nothing to fear from more liberal economics.

• Robert Cottrell is central Europe correspondent for The Economist.

Feature on Slovenia, the first of the former Yugoslav republics to join the European Union.