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Oct. 5 (Bloomberg) -- Jakub Francisci, owner of the San Marten restaurant in Bratislava’s Old Town, compares adopting the euro with getting married.
“You marry somebody who you see as the best person on earth, and after some time she is a different person,” Francisci, 33 and single, said over lunch at his eatery in the Slovak capital. “The honeymoon is over, but you have to stay with her, in good times or bad times.”
The euro is losing its gloss for the currency group’s newest members, whose less-indebted, faster-growing economies stand for what the region was supposed to be rather than what it has become. With average salaries still below the Greeks, it’s getting tougher to garner support among the poorest euro citizens for further aid to their Mediterranean partners.
Less than three years since adopting the euro, Slovakia may be the last country to approve the European Financial Stability Facility, or EFSF, as Prime Minister Iveta Radicova struggles to gain support among all her coalition partners. The vote in Bratislava is scheduled to take place on Oct. 11 and a meeting yesterday failed to yield an agreement.
Estonians, who joined the common currency on Jan. 1 after having the kroon for 18 years after independence from the Soviet Union, backed the EU’s rescue fund, with 59 of 101 lawmakers supporting it in a Sept. 29 vote.
About a dozen protesters stood outside the legislature on Sept. 27 as the EFSF was being debated, carrying placards saying “Estonia! Welcome to the Titanic” and “Lending to Greece is like giving vodka to a drunk” and mingling with some of the politicians who voted against it.
“The attitude is still positive, but it will probably start deteriorating quite quickly now,” said Hardo Pajula, an economist at Stockholm-based SEB AB, the second-largest Baltic lender. “One thing is to vote for rather abstract guarantees, but making real fiscal transfer is something rather different.”
Germany has committed the biggest share to the rescue of Greece, Ireland and Portugal. It’s the largest country in the expanded EFSF with guarantees totaling 27 percent of the 780 billion-euro ($1.04 trillion) fund.
Slovakia is guaranteeing 7.7 billion euros for the facility, or 1 percent, while Estonia pledged 2 billion euros, or about 0.3 percent, according to the agreement.
Rich and Poor
The risk for the euro region is that dissent in smaller countries will derail further efforts by governments to improve the workings of the currency bloc and stop the crisis.
While Slovak Finance Minister Ivan Miklos said he hopes parliament will pass the EFSF, plans to introduce a permanent bailout mechanism as soon as next year will likely also need approval by the lawmakers.
“A couple of years ago, being in the euro zone meant a mark of quality, but it is different now,” said Gabor Nagyvendegi, 34, who works for a computer company in Dunajska Streda, Slovakia. “It’s pathetic what’s happening now. Poor countries like Slovakia shouldn’t bail out the rich ones.”
When Greece started spending the handouts that came with EU membership in 1981, Slovakia and Estonia were at least eight years away from unshackling themselves from communism.
In Estonia, the average gross monthly pay was 792 euros in the second quarter, while it was 781 euros in Slovakia, based on data from national statistical offices. In Greece, the minimum gross monthly wage was 863 euros as of Jan. 1 this year, according to Eurostat.
Giving to Greece
“We could do much better than give money to Greece and others who have squandered their finances but where people are still better off than here,” said Piret Pent, 33, a mother of two who runs her own catering business in Tallinn. “Of course I am angry about Estonia supporting those countries. We could instead raise our own child support or pensions.”
The Slovak economy, driven by exporters such as Volkswagen AG since the nation divorced from the Czech Republic in 1993, grew at an annual rate of 3.3 percent in the second quarter. While that slowed from 3.5 percent in the first three months of the year, it was still twice the pace for the euro zone.
The country’s debt amounted to 41 percent of economic output at the end of 2010, according to data from Eurostat in Luxembourg. By contrast, Greece’s debt was 43 percent greater than the size of its economy at the end of last year and the government forecast the figure will rise to 62 percent in 2011.
Greece’s economy will shrink for a fourth straight year in 2012, contracting 5 percent this year and 2 percent next year, the International Monetary Fund said last month. Its 10-year government bonds yielded 23.1 percent yesterday, compared with 4.32 percent for a Slovak bond maturing in 2020.
Tired of Waiting
“I’m tired of watching how these euro-zone politicians aren’t able to fix the situation,” said Francisci, the restaurateur in Bratislava. “They want poor countries like ours to pay for other’s debts. Isn’t it ridiculous? Greece should go bankrupt and return to the drachma.”
In Estonia, the economic scorecard stands out even more, though the Baltic state remains the poorest nation in the euro region based on per capita gross domestic product after the second-deepest recession in the EU from 2008 to 2009.
The $19 billion economy was the fastest-growing in the 27- member EU in the first and second quarters, expanding 9.5 percent and 8.4 percent from a year earlier. It had the EU’s lowest public debt last year, at 6.7 percent of GDP, and the only budget surplus of euro-zone members. Estonia also doesn’t have any government bonds.
Jaanus Mikk, head of property developer Narva Gate OU on Estonia’s eastern border with Russia, said the euro was good for the country because the currency could show investors how it hasn’t relied on debt and kept spending in check.
“We were really stripped naked in that process,” Mikk, 48, said at his office in Narva. “The euro zone remaining intact would obviously be good for us, but if there in no other option but splitting into two parts or throwing some countries out, we will probably not be hit as much as some of the big countries that have been supporting this reckless spending.”
Finance Minister Juergen Ligi said Estonians differed from Slovaks when it came to the euro.
“We tend to be in different camps,” Ligi told lawmakers in Tallinn during a Sept. 27 debate on the stability fund. “Our budget policy is much stronger and our skepticism towards the euro is much weaker. We have never been as critical of Europe as what we hear from them.”
In Slovakia, the second-poorest euro region member, premier Radicova may have to rely on the largest opposition party to back the European bailout fund. It has said it will only back the legislation if the cabinet steps down.
Richard Sulik, chairman of the Freedom and Solidarity party and one of the four in the coalition, repeatedly said bailouts are a bad solution since they lead to creation of more debt. Greece should go bankrupt and abandon its euro membership, he said in a Sept. 15 interview.
A poll conducted by the MVK agency in Slovakia on Aug. 23- 29 on a sample of 1,038 people indicated the SaS party’s stance is in line with the mood of the citizens. About 52.2 percent of respondents were against expanding the bailout mechanism and 31.1 percent favored the move, with 16.9 percent undecided.
“The euro itself is beneficial for Slovakia, but not in the current setup,” said Juraj Blecha, 36, who runs a family company distributing laboratory equipment. “The EU has been mishandling the crisis from the very beginning. They should have been much tougher on Greece.”
Back at the San Marten restaurant, which serves Italian food, Francisci laments what he expected of the euro since he opened up five years ago. His plan was to sell western-quality food at not-so western prices, he said.
“I had big expectations about the euro, but, frankly, I am not better off business-wise,” he said. “The only advantage for me is that I can take a drive to Vienna and have coffee there without a need to change money.”
--Editors: Rodney Jefferson, Tim Quinson
To contact the reporters on this story: Radoslav Tomek in Bratislava at email@example.com; Ott Ummelas in Tallinn at firstname.lastname@example.org
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