Bloomberg News

Slovakia to Make Final Push to Back Euro Bailout Fund

October 13, 2011

(Corrects spelling of Nicolas in fifth paragraph of story published on Oct. 10.)

Oct. 10 (Bloomberg) -- Slovakia’s ruling coalition will make a final attempt today to end a dispute over participation in a euro-area bailout mechanism to avoid a government collapse and further delays in shoring up budgets across Europe.

The leaders of four governing parties in the euro region’s second-poorest member began a meeting at 4 p.m. in the Slovak capital Bratislava to discuss conditions demanded by Freedom and Solidarity, a junior coalition member, in return for its support of the bailout system. Party Chairman Richard Sulik has said his lawmakers will reject the related legislation in a vote tomorrow if conditions aren’t met.

“Our position” on the bailout mechanism “is known, and we won’t change it,” Sulik, who is also parliamentary speaker, told reporters before the meeting.

The euro has lost more than 5 percent in the past month as Europe struggles to contain the debt crisis that’s spread across the continent over the last year from Greece. Slovak approval of enhanced powers of the European Financial Stability Facility, the temporary bailout fund, is crucial for adopting the key element of Europe’s strategy. Malta is the only other country in the 17-member euro bloc that has yet to ratify the measures agreed by EU leaders in July.

Bank Recapitalization

As the crisis continues to engulf the euro region and threatens its lenders, German and French leaders at a meeting yesterday pledged to devise a plan to recapitalize banks, help Greece and strengthen Europe’s economic governance. German chancellor Angela Merkel, after meeting French President Nicolas Sarkozy, said Europe will do “everything necessary” to ensure that banks have enough capital.

The euro gained 2 percent to 1.365 against the dollar as of 3:11 p.m. London time.

Sulik said SaS, as his party is known, is ready to make unspecified concessions in its demands, which were rejected last week by Prime Minister Iveta Radicova. Radicova’s party, the Slovak Democratic and Christian Union, supports approval of the EFSF.

“For protection of the euro zone, for protection of bank deposits of our citizens, the mechanism is absolutely necessary,” Mikulas Dzurinda, a foreign minister and the chairman of Radicova’s party, told reporters before the coalition meeting.

Without votes from SaS lawmakers, the EFSF package is destined for rejection tomorrow as the two opposition parties have said they won’t support it. This would further deepen the row within the four-party coalition and may lead to a collapse of the government.

Opposition Offer

Smer, the larger of the opposition pair with 62 lawmakers in the 150-seat assembly, has offered to back an enhanced rescue fund in an eventual repeated vote if the current coalition steps down.

Radicova has said she wants to have the legislation approved before a summit of EU leaders originally scheduled for Oct. 18. European leaders today said they pushed the meeting back by a week. By setting the start of the debate preceding the vote for tomorrow, the government left itself room for further talks and a repeat of the balloting before the meeting.

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.

Salary Comparisons

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.

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.

SaS wants to create an inter-party committee in which each member would have a right to demand the ability for the country to veto individual EFSF disbursements. It is also demanding that the country doesn’t participate in the European Stability Mechanism, a permanent rescue vehicle set to come into force in 2013.

Different Approach

Sulik, whose party seeks lower taxes and less regulation for business, has said repeatedly he thinks European leaders must find a more sustainable way of saving the euro area than continuing to inject money into budgets in the form of loans and revenue enhancements.

The expanded powers of the 440 billion-euro ($589 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.

--Editors: James M. Gomez, Alan Crosby

To contact the reporter on this story: Radoslav Tomek in Bratislava at rtomek@bloomberg.net; Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net; Balazs Penz at bpenz@bloomberg.net


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