Slovakia rejects expanded bailout
BRATISLAVA, Slovakia - Slovakia’s Parliament rejected a key euro bailout bill yesterday, threatening Europe-wide efforts to ease a debt crisis that is threatening the global economy. The vote triggered the collapse of the government, but the outgoing prime minister and her main opponent both said they would now work to approve the bill quickly.
The agreement to talk came shortly after Parliament voted against an expanded euro bailout fund - a vote that Prime Minister Iveta Radicova had tied to a confidence measure. Parliament is scheduled to convene again tomorrow, but it is not clear when another vote will be held.
The eyes of officials and investors around the world are on the small central European country because expanding the fund requires the approval of all 17 countries that use the euro currency. Sixteen countries have already approved, and now Slovakia, with a population of just 5.5 million people, holds in its hands the fate the financial plans of the eurozone and its 332 million citizens - and by extension, the global economy.
But the statements of the country’s leading politicians late yesterday left little doubt the Slovakian Parliament would approve the measure.
“We decided that we have to do it as soon as possible,’’ Radicova said after announcing her party would hold talks with the primary opposition party, Smer-Social Democracy, led by former Prime Minister Robert Fico.
Fico took the same line. “Slovakia has to approve the fund,’’ he said.
Fico and his party had always supported expanding the fund expansion in principle, but had said it would vote yes only if the government agreed to call early elections.
Although approval of the measure seems likely, the drama and brinkmanship highlighted what has become a major issue in Europe’s debt saga: In a system where unanimity is required, even small countries wield great power.
Because major eurozone policies need the approval of all 17 countries that use the currency, Slovakia’s vote - the last - carried immense weight. For weeks it appeared certain it would reject boosting the bailout fund, unnerving financial markets and threatening the future of Europe’s plans to fight the crisis.
Experts said EU officials could possibly find a way around a Slovakian rejection of the bill to boost the powers and size of the bailout fund, the European Financial Stability Facility, but that doing so would carry costs to European unity.
In the longer-term, the drama seems sure to add momentum to the push for nimbler rules to govern the eurozone, where government reaction to the unfolding crisis has seemed for many months to be behind the curve.
At issue now is an agreement reached by the eurozone leaders in July 21 to enlarge the stability fund’s capital guarantee from $600 billion to $1.07 trillion. Slovakia would contribute about 1 percent, or $10.5 billion. In addition, if the changes are approved, the facility would have new powers and able to prop up government bond markets and help put new capital reserves against losses in banks.