Bloomberg News

Fitch Says Slovakia’s EFSF Rejection May Extend Euro Crisis

October 12, 2011

Oct. 12 (Bloomberg) -- Fitch Ratings said Slovakia’s rejection of a proposal to increase the powers of the euro area’s rescue fund will contribute to the region’s crisis persisting for “an extended period.”

The decision “highlights the continued political and technical complexity of establishing the necessary effective institutions in the euro area,” Fitch said in a statement in London today. “Political uncertainties, such as this one, will contribute to the euro-area crisis persisting at varying degrees of intensity for an extended period rather than just a few months.”

Slovakia is the only country in the 17-member region yet to approve the European Financial Stability Facility, and Prime Minister Iveta Radicova wants to start talks with the opposition on a second parliamentary vote, spokesman Michal Lukac said today.

Fitch said that while the nation “appears to be heading toward an agreement,” a second rejection would leave the European Central Bank with “little choice.” The ECB would have to continue to absorb sovereign and bank risk onto it balance sheet, or increase the risk of systemic sovereign default, it said.

“Nevertheless, the agency believes the euro area will eventually reach a hybrid compromise, that prevents break-up but which falls short of full fiscal union, but which will restore confidence,” Fitch said.

-- Editors: Fergal O’Brien, Jeffrey Donovan

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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