25th May 2022

Austria spooks markets over EU bail-out fund

  • Just two of the 17 eurozone countries have ratified measures to strengthen the euro bail-out fund (Photo: Images_of_Money)

Three Austrian opposition parties - the far-right BZO and FPO parties and the Greens - caused a steep drop on Wall Street on Wednesday (14 September) after delaying ratification of the EU's new rescue fund.

The scare took place when the parties blocked the Austrian parliament's finance committee from scheduling a plenary vote on the fund at the next regular full session on 21 September.

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The move followed publication of a readers' poll in the Krone tabloid newspaper saying that 92 percent of people want Greece to be evicted from the eurozone.

The Austrian finance ministry shortly afterward issued a clarification that the new-model European Financial Stability Fund (EFSF), can still be ratified during the next full sitting of the parliament, in mid-October, or more quickly if the parliament calls an extraordinary EFSF session on 30 September or 3 October.

Austrian ratification as such is not in doubt because the ruling coalition has enough seats to make the simple majority required to pass the measure. But the finance committee makes decisions on a two-thirds majority.

The hiccup caused a violent reaction in financial markets.

The Dow Jones Industrial Average in the US plunged 112 points in a matter of minutes after the finance committee made the news, but rallied almost as quickly when the full picture became clear.

Shares in French bank Societe Generale, which is heavily exposed in Greece, fell 10 percent. The FTSE 100 and the value of the euro also fell before going back up after Vienna clarified that the finance committee glitch will not kill the EFSF.

EU economic affairs commissioner Olli Rehn over the summer promised markets the second Greek bail-out and the expanded EFSF would be fully in place by the end of September.

But with two weeks left until the deadline, just two out of the 17 eurozone countries that need to ratify the deal - Belgium and France - have so far completed the process.

Slovakia, another problem country, sent mixed signals on Wednesday.

On the one hand, Prime Minister Iveta Radicova survived a no-confidence vote brought by opposition parties Smer and the Slovak National Party over alleged government corruption.

On the other hand, a survey by pollsters MVK said that while 47.6 percent of voters support the new EU rescue measures, a large minority - 32.9 percent - is against ratification. A full 51.2 percent of people who vote for the junior coalition party, the libertarian Freedom and Solidarity faction, are against the new bail-outs.

The results lend weight to Freedom and Solidarity's bid to put off ratification until at least December so that the full implications of Slovakia's participation can be understood.

"[The] EFSF itself is the greatest threat to the euro. The only real solution to the debt crisis is rigorous enforcement of the currency bloc's regulations on budget deficits and public debt", the party's leader, Richard Sulik, earlier told EUobserver.

"It's definitely not possible to solve a debt crisis by creating new debts".

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