The social democratic party SMER, a left-wing party focused on government support, has again won the majority of votes in the recent elections. This is the fourth term for the party, which previously ruled the country from 2006-2010, 2012-2016, and 2016-2020.
The party’s campaign was characterized by populist solutions to current issues and a pro-Russian orientation. Key matters included the cancellation of military and financial aid for Ukraine, the stabilization of food and energy prices, the introduction of taxes on the excessive profits of banks and corporations, an increase in pensions, and strong support for sectors such as agriculture.
However, the party’s electoral promises were presented in a poorly written political program, mainly consisting of points and offering simplified, but expensive, solutions. Considering the country’s current situation, which has the largest budget deficit in the eurozone, the proposed solutions are perceived as unrealistic.
Despite these criticisms, the party’s populist approach and pro-Russian stance have led to another term. The party now has a mandate to form a coalition government, indicating its ongoing dominance in the country’s political landscape.
If the commitments included in the political program were to be fully implemented, they would likely lead to further budget deficits in the coming years, pushing public debt into an uncontrollable spiral. However, investors appear to disregard these potential problems as bond yields have remained virtually unchanged.
From my perspective, the banking sector will likely feel the effects first. During the campaign, the party did not hide its negative attitude towards banks, clearly indicating its intention to introduce a tax on excessive profits and regulate mortgage rates.
Moreover, the party’s program suggests the intention to intervene in the “invisible hand” of the market. It mentions the concept of “reasonable profits” for all corporations, potentially leading to the introduction of taxes on excessive profits in other sectors deemed to be making excessive profits. With this in mind, the oil refinery sector is likely to be next in line for such taxes.
The party’s focus on strengthening economic relations between Poland and Slovakia aims to tighten ties in the countries of the Visegrad Group (V4). A key element of their strategy is maintaining a common position on the ban on the import of Ukrainian grain and other agricultural products, promoting mutual understanding and cooperation. Moreover, the party sees the V4 as a potential united block capable of countering certain actions of the European Union that they find unsatisfactory.
At present, the formation of the government is still incomplete, and the keys to power are held by Peter Pellegrini, a former political ally and current leader of the social democratic party Hlas, which is Polish for “Voice”. Pellegrini has clearly stated that he intends to avoid ruling in alliance with a pro-Russian party, ensuring a government with a distinctly Western orientation.
Author: Marek Nemky, analyst at the XTB branch in Slovakia.
