20th Mar 2018

Slovakia poses increasing threat to EU bail-out fund

  • Slovak flags in central square in Bratislava (Photo: theodevil)

Plans to strengthen the firepower of the eurozone's bail-out fund may be put in jeopardy by Slovakia, where a coalition stalemate is prompting the government to consider asking for a special derogation.

Last in line to vote, Slovakia's parliament is supposed to pass two pieces of legislation - one agreeing the framework of the new fund and a second piece that would formally raise Bratislava's guarantees from €4.4 billion to €7.7 billion.

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However, the junior ruling coalition party Freedom and Solidarity remain steadfastly opposed to raising the country's contribution, depriving the centre-right Christian Union party of Prime Minister Iveta Radicova of the necessary threshold of votes.

According to sources in Bratislava, the government is now looking to see if it can secure a formal declaration on its contribution, understood to mean that Slovakia's money would be ring-fenced.

But Brussels on Friday (30 September) promptly dismissed the hoped-for exit route, reminding Slovakia that it "fully" signed up to a 21 July agreement of EU leaders that would increase the fund to €440 billion, and each participating country's share in it.

"Other member states, when the political reality was very difficult, voted and ratified the agreements concerning the enhancement of the EFSF," said the European Commission's economic affairs spokesperson, making a special reference the eurozone's paymaster Germany, which on Thursday agreed to raise it share of guarantees from €123 bllion to €211 billion.

He noted that the euro has been "very beneficial" for Slovakia and that it is in the "selfish interest" of Slovak citizens and politicians to have the changes greenlighted.

The spokesperson also rejected the notion that Brussels was considering some sort of contingency plan. "There is no plan B because we have a Plan A," he said.

Privately, the language of EU officials has been stronger. One high-ranking official said the mooted demand would be "unacceptable" while others noted that Slovakia's international reputation would take a hammering if it failed to ratify the fund.

Slovakia's EU commissioner Maros Sefcovic, currently on a trip to his home country, said he was "convinced" that that the solution being considered by the government would be "hardly acceptable for our partners".

The enhanced fund, whose new rules would allow it to buy the debt of eurozone countries, capitalise troubled banks and give pre-emptive credit lines to governments, needs to be approved by all 17 eurozone states.

Slovakia, where political debate has focussed on the justification for per capita poorer Slovaks bailing out richer Greeks, emerged almost immediately as the country likely to have the most profound problems.

The Slovak debate is likely to make markets even more sceptical about the eurozone's political willingness to take all necessary measures to save the single currency.

The €440 billion is already viewed as far too small to deal with possible contagion to Spain and Italy and the Europe's under-funded banks, with informal talks already underway to leverage the fund to give it a credit capacity of €2 trillion.

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