Euro Region’s Crisis to Slow Slovak Deficit Cuts, Radicova Says

Slovakia will cut the budget deficit less than planned as slowing growth in the euro region weighs on the country’s economy, Premier Iveta Radicova said.

The European Commission on Nov. 10 cut its euro-region growth forecast for next year by more than half to 0.5 percent and said it sees the risk of a recession as leaders struggle to keep the fiscal crisis from spreading. It forecast a 1.1 percent growth in Slovakia, the euro region’s second-poorest member.

“We won’t cut the budget in such quick steps, we’ll do it more slowly next year,” Radicova said in an interview in London on Nov. 11. “We’ll decrease the deficit maybe half a” percentage point “but not more, because we have to keep our public finances stable.”

The 2012 budget draft targets a deficit of 3.8 percent of gross domestic product, based on an assumption of 3.4 percent economic growth. Radicova’s caretaker Cabinet, in place until early elections in March, lacks the mandate to raise taxes or take other measures to offset the revenue shortfall, estimated by the Finance Ministry at 665 million euros ($911 million).

Her four-party coalition lost a confidence motion in Parliament on Oct. 11, in exchange for the main opposition party’s support for enhancing the euro region’s bailout fund. Slovakia backed the bolstered European Financial Stability Facility in a second vote on Oct 13, the last euro member to do so, after parties agreed to hold early elections, in which Radicova said she has no intention to run.

Beside keeping debt levels from rising and cutting the deficit further, the new government’s priority should be protecting jobs, Radicova said.

“If there is no economic growth we will need financial resources in order to keep workplaces,” she said. “I would prefer to use money to keep the work force and workplaces to try to keep the employment rate and to slow the process of cutting deficit.”

To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Radoslav Tomek in Bratislava at rtomek@bloomberg.net

To contact the editors responsible for this story: James M. Gomez at jagomez@bloomberg.net; Balazs Penz at bpenz@bloomberg.net

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