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Slovakia blocks expanded euro rescue fund

By Christoph Thanei and Albert Otti Oct 11, 2011, 20:45 GMT

Bratislava - Slovakia halted the eurozone's plans to expand its bailout fund Tuesday, when the government failed to win a majority in parliament to approve the extended European Financial Stability Facility (EFSF) and was forced to step down.

The Central European country was the last of the 17 eurozone members to vote on the reform, which is seen as key to battling the growing financial crisis affecting not only the single currency, but also the wider European Union and the global economy as a whole.

However, Slovakia has a chance to change its stance in a second vote on the issue.

Prime Minister Iveta Radicova and her four-party cabinet toppled over the euro rescue fund vote, which she had linked to a confidence vote.

She tried to round up a majority, but one of the government's four parties, the neo-liberal SaS, refused to take part in the voting.

'We did not create these problems. Therefore there is no reason to pay for them,' SaS leader Richard Sulik said in the parliamentary debate.

Only 50 of 150 legislators approved the EFSF reform, 60 abstained and nine opposed it. Support from 76 representatives was required.

The second vote could have a different outcome as opposition leader Robert Fico has said his Social Democrats would vote 'Yes' if the government stepped down, a condition that was effectively fulfilled late Tuesday.

Slovakia's share in current guarantees that back up the EFSF lending volume amounts to 4.4 billion euros - about 1 per cent of the total guarantees.

'If Slovakia withdrew its guarantees, it would hardly reduce the fire power of the EFSF,' an EU diplomat said in Brussels. 'But the political signal would be fatal.'

The bailout fund would continue operating in its present form and would be able to help small countries such as Portugal and Ireland.

But bailing out major euro countries such as Italy or Spain would strain the fund, whose lending capacity is supposed to be raised from 250 billion euros to 440 billion euros (340 billion dollars to 599 billion dollars) as part of the reform.

Slovak leaders have pointed out that it was difficult to convince citizens of contributing to the EFSF, given that the country received no foreign help when it restructured its finances around the turn of the century and implemented strict austerity measures.

Slovaks live in one of the poorest euro countries, with an average monthly income of 800 euros.

Earlier Tuesday, EU ministers meeting in Luxembourg expressed optimism that Slovakia would come around.

'I think the Slovak political class will show joint responsibility and commitment to the euro and to the EU,' said Polish EU Affairs Minister Mikolaj Dowgielewicz. Poland currently holds the EU's rotating presidency.

The European Commission refused to speculate on what would happen if Slovakia refused to endorse the expanded mandate for the EFSF.

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