30 years of independence: The Czech Republic and Slovakia are flourishing, but which country is more successful?

After the division of Czechoslovakia, the newly created states forged their own paths. From the beginning, the Czech Republic aspired to early integration with the "West" and looked to its market principles. Slovakia, on the other hand, under the leadership of then three-time Prime Minister Vladimir Mečiar, gradually isolated itself, politics regressed and clientelism penetrated the economy. This had an adverse effect on the economy, living conditions, and prosperity of the country.

In 2004, the paths of the two countries crossed again when they joined the European Union along with other countries. For Slovakia, 2004 was a watershed year, the same year it joined NATO. While the Czechs chose the path of gradual integration right from the start but stopped before the crucial step of adopting the euro, the
Slovaks, after bad experiences with international isolation and its unfortunate impact on the quality of life of their citizens and national prosperity, subsequently plunged into integration with zeal. However, the euro was preceded by unprecedented reform efforts under the baton of then Prime Minister Mikulas Dzurinda and his government, which are still looked upon with admiration and a little envy in the Czech Republic.

Thanks to extraordinary pro-reform efforts, Slovakia has managed to reverse the unfavourable development of the economy, which was accompanied by a decline in relative economic standing, double-digit unemployment, a weakening of the national currency and high inflation. In contrast, EU accession and subsequent reform efforts, culminating in the successful adoption of the euro, boosted the Slovak economy and attracted substantial foreign investment. Thanks to these investments, the Slovak economy not only modernised, but later surpassed not
only the Czech Republic, but the entire world in the number of cars produced per capita.

Slovakia, which was disadvantaged from the start by its outdated economic structure, began to catch up with the Czech Republic thanks to the adopted market reforms. While according to World Bank data, GDP per capita in the Czech Republic was about 1.5 times higher than in Slovakia in 1993, it was only about 1.15 times higher in
2010. However, the growth rate logically decreases with increasing wealth. In 2021, GDP per capita in the Czech Republic was still about 1.1 times higher. Thus, the Czech Republic maintains the lead in economic level (standard of living) among all countries of the former Eastern bloc, including Slovenia.

Even during the global financial crisis, the Czech economy managed to surpass the living standards of both Portugal and Greece, which were mercilessly hit by their own debt crisis that infected the rest of the European Monetary Union. Moreover, in 2018, the Czech Republic also surpassed Spain's standard of living. In the 30 years since the Czech Republic‘s independence, the standard of living of its citizens has almost tripled.

And the Czech Republic has managed to keep one more primacy for a long time - it has the lowest unemployment rate in the entire EU. Slovakia, on the other hand, occupied the lower ranks of European countries with one of the highest unemployment rates at the beginning of this millennium and again after the global financial crisis hit.

Any comparison of the development of the Czech and Slovak economies slides into a comparison of the Czech Republic without the euro and Slovakia with the euro. This comparison always ends in a stalemate - a dead end. Although these countries shared a common state, president, currency or central bank 30 years ago, they had fundamentally different economic structures. Moreover, in order to be admitted to the currency union at all, Slovakia had to carry out major economic and political reforms.

Therefore, to use the example of the Czech Republic and Slovakia as a representative case for comparing the advantages and disadvantages of adopting the common currency, the euro, would complicate the  discussion/conversation. The adoption of the euro in Slovakia cannot be separated from the reforms that preceded it. Thus, Slovakia‘s development after the adoption of the euro can only be evaluated in the light of external circumstances (the global financial crisis, the euro crisis, the pandemic shock), the reforms implemented (but later also refined), and finally, the impact of the common currency.

As I have already mentioned, the adoption of the euro has demonstrably increased Slovakia's attractiveness in the eyes of foreign investors, which has contributed to capital inflows, the modernisation of the economy, the reduction of the share of outdated heavy industry in the economy and the reorientation of Slovakia towards Western markets. However, Slovak households have also experienced a significant change - price levels have been approaching the "Western level" faster than the country’s economic level. Even faster than in the Czech
Republic. While the average price level in the Czech Republic has increased by 350% since the split, it has increased 430% in Slovakia. The faster increase in the average Slovak wage (roughly 710% compared to 680% in the Czech Republic) did not compensate for the increase in the cost of living for Slovak households.

Nevertheless, both countries have come a long way in the last 30 years. Not only have they fully adapted to and integrated into Western democratic structures, but they have also ensured an increased standard of living and quality of life for their citizens. The standard of living in Slovakia has quadrupled compared to then, and in the Czech Republic it has almost tripled. The purchasing power of households has more than tripled in the Czech Republic (350%) and more than doubled in Slovakia (280%). The average life expectancy of Czechs has increased 
by more than five years, that of Slovaks by more than four years. Infant mortality in the Czech Republic has  fallen by an incredible three quarters, in Slovakia by more than half.

The natural environment is also improving: energy consumption and carbon dioxide emissions have roughly halved in both countries. The two countries are also better educated - but in the Czech Republic the number of university students has grown slightly faster. However, the Czech‘s public debt relative to the size of the economy has risen sharply recently, albeit from lower levels (42 per cent of GDP in the Czech Republic and 63 per cent of GDP in Slovakia).

Both countries now face new challenges. Their dependence on the automotive industry, even moreso for  Slovakia, exposes both countries to the need for further economic transformation. The energy-intensive sectors, which still have a significant presence here, will also face challenges. The only way to increase the structural and therefore long-term sustainable growth of both economies is to develop modern economic sectors, diversify their customer supply chains, adapt education to the needs of modern times, encourage investment in modern and sustainable technologies, and deal with the ageing population and the associated burden on public budgets.