Ratification Hangs in Balance Europe Tensely Awaits Euro Vote in Slovakia
Flags of Slovakia and the European Union blow in the wind in front of the parliament building in Bratislava: A tense debate is expected Tuesday over the euro bailout.
Foto: APSlovakia is the only euro zone nation that has yet to ratify the increase in the size and scope of the euro rescue fund, and when the country's parliament convenes on Tuesday afternoon for the vote, the whole of Europe will be watching closely. A "No" from Slovakia would thwart the rescue measure agreed by EU leaders in July and could exacerbate the debt crisis by triggering further financial market turmoil.
The drama is intensifying by the hour. Reuters is reporting that Richard Sulik -- who heads the Freedom and Solidarity Party (SaS), a junior coalition partner in Slovakia's government -- has called on members of his party to abstain from the vote. Sulik and his party have argued that Slovakia, as one of the poorest members of the currency zone, shouldn't be forced to pay for debt accrued by wealthier countries.
"We reject this pressure, and therefore will not take part in the vote," Sulik said, according to Reuters. That move will force the government to turn to opposition parties for support to get the law through parliament.
Slovak Prime Minister Iveta Radicova said she will tie the ratification vote to a vote of confidence in her government.
Parliament President Sulik of neoliberal SaS had previously announced that his party wouldn't support the expansion of the euro rescue fund without concessions. The party is demanding that the Slovakian government state now that it will not participate in the European Stability Mechanism, which is intended to replace the current European Financial Stability Facility (EFSF) in 2013. Radicova, however, has rejected that demand, claiming "it is unacceptable for other euro-zone countries."
The reform of the rescue fund, the European Financial Stability Facility, can only go into effect if it is ratified by all 17 euro zone member states.
Parliament Could Vote Again on Issue
It appears that Slovakia would have a second chance to consider the measure if it is rejected on Tuesday. Under Slovakian legislation covering international treaties like the EFSF, parliament could vote for a second time on the euro rescue package following further debate. In theory, more time is available for the country's political parties to reach a compromise.
But that won't stop the clock from ticking. In recent days, the euro-zone debt crisis has intensified. Three years after the outbreak of the global financial crisis, governments are having to step in to rescue banks again. On Monday, major Belgian-French bank Dexia had to be partially nationalized . In Greece, a small bank has been rescued by the central bank. And with leaders in Berlin and Paris now seeking to wait until the end of October before presenting a common plan for containing the crisis, an EU summit planned for next week had to be delayed until Oct. 23.
Against this backdrop, political and economic actors across Europe have their eyes on Slovakia on Tuesday. Statements made by politicians in the country so far indicate a heated and protracted debate in parliament and that a vote is unlikely to come until the evening. It's also possible it could be postponed again.
Opposition Seeks Concessions
Without Sulik's SaS, Radicova will be unable to secure a majority in parliament for the EFSF expansion within her coalition. Smer, Slovakia's social democrats who are the largest opposition party and are led by former Prime Minister Robert Fico, has said it supports the EFSF expansion in principle. But Fico has repeatedly stated that he would only back the rescue fund expansion if the current government were to recognize its "incompetence" and tender its resignation, opening the path for snap elections.
So far, EFSF has provided Ireland and Portugal with cheap loans. But as the crisis intensified during the summer, EU leaders moved in July to increase the cash and guarantees available to the euro bailout fund -- in part because EFSF as it exists now would be insufficient for addressing a worsening of the crisis in Italy or Spain. If Slovakia approves the measure, the EFSF's lending capacity will be increased from today's €250 billion ($340 billion) to €440 billion, and the total size of the fund in terms of guarantees provided by the euro zone members will grow to €780 billion.
With Europe's eyes on Slovakia on Tuesday, SPIEGEL ONLINE has answered the most-important questions about the vote in Bratislava and what a "no" vote might mean for the future efforts to save the common currency.
What Will the Vote Mean for the Future of the Rescue Fund?
Would the euro rescue program end if Slovakia rejected it?
No. The euro rescue fund, the European Financial Stability Facility, was created back in June 2010 in order to assist euro-zone countries threatened with insolvency. It can lend out up to €250 billion and would still continue to exist in this form. The bailout programs that are already in progress for Ireland and Portugal would continue. In addition, the first aid package agreed to during spring 2010 for Greece would also remain untouched.
What would happen to the planned reform of the euro rescue fund?
A Slovakian "no" would halt the plans to expand the fund -- at least for the time being. It would not be possible to increase the amount of credit guarantees at the EFSF's disposal from the current €440 billion to €780 billion because the reform requires the approval of all 17 euro member states.
What would the consequences of a "no" vote be?
Euro-zone leaders sought to expand the size of the EFSF because it was considered to be too small to calm financial markets. If, after Ireland and Portugal, another, larger euro-zone country were to run into trouble, the EFSF would be more or less useless in its current form -- especially if one of those countries turned out to be Spain or Italy.
In that sense, if Slovakia were to block the reforms, it would be more than just an embarrassment and setback for the countries attempting to save the euro. It could also create new unrest in the financial markets and increase pressure on overly indebted euro-zone states considerably.
Are there alternatives to increasing the size of the bailout fund?
There are two alternatives. Either the other euro-zone states must assume responsibility for the share originally intended to be provided by Slovakia -- an amount that is less than 0.5 percent. In concrete terms, the eastern European country is contributing about €3.5 billion to the total €780 billion that the expanded fund would have at its disposal in guarantees.
Otherwise, the remaining 16 euro-zone countries might accept that the sums guaranteed cannot be increased from €440 billion to €780 billion and they might then pursue approval for a bailout package comprising a slightly smaller sum.
