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25th Sep 2022

Risk of eurozone break-up 'very real,' Slovakia says

  • A section of the Slovak flag (Photo: formulaphoto)

The debt-ridden eurozone risks break-up unless it forces banks to eventually share the crisis bill with taxpayers, Slovakia, the euro area member who recently refused to participate in the Greek bail-out, has suggested.

"Even during current conditions that are very tough, very complicated, and when the risk of the eurozone break-up - or at least of its very problematic functioning - is very real, despite all that, Estonia will become a new member in January," Slovak finance minister Ivan Miklos said on Wednesday (24 November).

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He was speaking to university students in the Czech capital, Prague.

Since it came to power in July this year, the Slovak centre-right government has called for private investors to feel the pain of any rescue operation under the eurozone umbrella. It considers the Greek bail-out "essentially a mistake" and a "precedent" that made European governments a "hostage" of financial markets.

"If we continue this way, we are close to a pyramid scheme," the Slovak prime minister, Iveta Radicova, told journalists after the Wednesday government session dealing mainly with Ireland (24 November). She warned that a system of accumulating debts eventually risked falling like "a house made of cards".

"Once again, taxpayers are expected to pay the bill. Once again, the banks are being rescued," Ms Radicova said, hinting that Lisbon and Madrid could be next going cap in hand to their EU colleagues.

"I cannot rule out that we will be soon discussing other countries. And I must point out that Portugal and Spain form communicating vessels," the politician said.

New bail-out ideas

Eurozone experts are already discussing details of a future permanent EU crisis instrument, a successor to the €750 billion backstop mechanism that is set to expire in mid-2013.

Germany and Finland have so far tabled proposals on how to pull bondholders into a rescue operation of the current scale, with both floating the idea of a "collective action clause".

According to media reports, governments in crisis would first adopt tough austerity programmes and in a later stage restructure their debt in agreement with the majority of creditors. This could take form of extending the original repayment period, reducing interest payments or a write-down. Governments would not negotiate with each investor individually, however, but a majority of creditors would set the terms of the restructuring.

"The only reason for them [financial institutions] to change behaviour is to include them in the responsibility chain in case of financial trouble," Iveta Radicova argued.

German Chancellor Angela Merkel, for her part, stressed in the country's parliament earlier this week: "This is about the primacy of politics, this is about the limits of the markets."

"Do politicians have the courage to make those who earn money share in the risk as well?"

Slovak refusenik: 'EU bailout fund is greatest threat to euro'

The eurozone's plans to strengthen its rescue fund are being threatened by an ideological row in Slovakia, with the governing coalition failing to resolve disagreement and one coalition partner telling EUobserver the bail-out scheme is "the greatest threat to the euro".

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