(Corrects spelling of Nicolas in 15th paragraph of story published yesterday.)
Oct. 12 (Bloomberg) -- Slovakia’s political parties rushed to find a way to approve Europe’s enhanced bailout fund after lawmakers rejected it amid a dispute over the future of Prime Minister Iveta Radicova.
Radicova wants to start talks today with the opposition on a second vote, according to spokesman Michal Lukac. The premier said the only country in the 17-member euro area yet to approve European Financial Stability Facility must find a solution to the issue “as soon as possible.” No time for a new vote has been set.
Slovakia “must sign up to the rescue fund,” Robert Fico said late yesterday, adding that his party, which didn’t back the measure yesterday because it couldn’t support Radicova’s government, is awaiting a proposal from the ruling coalition.
Global stock and currency markets rebounded from earlier declines on optimism the EFSF changes will be approved by Parliament in the country of 5.4 million people. Slovak approval of enhanced powers of the EFSF, the temporary bailout fund, is crucial for adopting the key element in the strategy to prevent contagion from the debt crisis that has spread from Greece to other countries in the region.
“Political uncertainties, such as this one,” threaten to prolong the euro-region debt crisis, Fitch Ratings said in a statement from London today. 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 buy the bonds of the currency bloc’s most indebted nations or increase the risk of systemic sovereign default, the ratings company said.
European stocks climbed to a five-week high and the euro strengthened as European Union Commissioner Olli Rehn said the debt crisis can be resolved. The benchmark Stoxx Europe 600 Index rose 0.8 percent as of 1:06 p.m. in London, after having dropped as much as 1.2 percent earlier. The euro rose 0.9 percent to $1.3767 from $1.3640 yesterday.
German Chancellor Angela Merkel said today she is “certain” Slovakia will approve the package before European Union leaders meet Oct. 23.
“European officials are quite good at suggesting revotes or different tactics if votes don’t come out in line with what is required,” Steven Saywell, head of foreign-exchange strategy for Europe at BNP Paribas SA in London, said by phone. “Assuming we do get a revote from Slovakia later in the week, it’s likely to be a ‘yes’ vote. Certainly the market seems to believe that.”
The Cabinet must resubmit the request for the approval of the EFSF-related legislation to parliament to allow a repeated vote on the matter.
Yesterday’s rejection cost Radicova her job as she tied the vote to a no-confidence motion in her Cabinet. Now she must find a way to rebuild a majority or face early elections. Finance Minister Ivan Miklos yesterday said the revamped EFSF will probably be passed this week.
“The government crisis in Slovakia illustrates one thing: the political price Europe has to pay is extremely high,” Commerzbank AG analysts led by Frankfurt-based Ulrich Leuchtmann wrote in an e-mailed note today.
Destined to Fail
A total of 55 lawmakers of the 124 present backed the motion, short of the required majority of 76 deputies. Nine were against it. The vote was destined to fail after the Freedom and Solidarity party, one of four coalition members, said it wouldn’t support the changes.
With average salaries still below those in Greece, it’s getting tougher to garner support among the poorest euro citizens for further aid to their Mediterranean partners.
As the crisis continues to engulf the euro region and threatens its lenders, German and French leaders at a meeting on Oct. 9 pledged to devise a plan to recapitalize banks, help Greece and strengthen Europe’s economic governance. Merkel, after meeting French President Nicolas Sarkozy, said Europe will do “everything necessary” to ensure that banks have enough capital.
The expanded powers of the 440 billion-euro ($600 billion) EFSF would allow the fund to buy the debt of stressed euro-area nations, aid troubled banks in the region and offer credit lines to governments. The EFSF’s current role is to sell bonds to finance rescue loans.
The vote “was used as a power tool amid the coalition crisis and the whole of Europe was taken a hostage,” Petr Just, a political scientist at Metropolitan University in Prague said in a telephone interview before the vote.
--With assistance from Agnes Lovasz in London. Editors: Balazs Penz, Douglas Lytle
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