Development and Finance from issue 2008/4

Gábor Miklós

Public Debt in the Visegrád States

- Abstract -

Slovakia and the Czech Republic have relatively low interest rates of 3-4 percent. Small public debt needs to be financed from low long-term interest rates. As we have demonstrated, it is very important that these two countries are able to compensate for the surplus expense from a 1 percent increase in the interest rate by means of one percent GDP growth (with the Czech Republic even registering a budget surplus). In other words, the economy is on a favourable track. Catching-up is likely in the long term, and euro accession shall take place here first, of all the Visegrád states. We must note that Bratislava is introducing the single European currency from 1 January 2009. In both countries, however, it is true that they are able to maintain this favourable economic development only if the monetary policies focus at the same time on maintaining the interest rate and the consumer price index at low levels. If Bratislava or Prague increase public debt, the interest rate would presumably increase as well, which would negatively affect the performance of the economy and lead to a recession. Of the four Visegrád countries, Hungary is the one struggling with the most problems at present.

Gábor Miklós, PhD student (International Relations Doctoral School Corvinus University of Budapest)

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