European Rescue Fund Faces Key Vote

Slovakia faces a key vote later today on whether to expand the powers of the European Financial Stability Facility seen as vital in combating the euro zone’s debt crisis. With one coalition party vowing to abstain, it looks as though the government will vote down the measures, but they may keep trying.

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After Malta approved the measures late on Monday, Slovakia is now the last of the 17 nations in the euro zone to put the matter to a vote. All 17 member states must approve the measures first proposed in July in order to expand the powers of the bailout fund.

Prime Minister Iveta Radicova says she will tie the vote to a confidence vote, putting her government at risk. Radicova thinks failure to accept the measures will put Slovakia’s future in Europe at stake. “It’s unacceptable for a prime minister to allow the isolation of Slovakia.”

The new measures would increase the rescue fund’s effective lending capacity to 440 billion euros, give it the power to inject capital into banks, and allow it to buy the bonds of distressed governments on the open market. Slovakia, one of the poorest countries in the euro zone, is being asked to guarantee 7.7 billion euros of the 440 billion-euro fund. The liberal Freedom and Solidarity (SaS) party, the only government coalition not backing the expansion, says that figure is too much for the small nation.

The SaS is demanding a binding agreement that Slovakia will refuse to take part in the European Stabilization Mechanism meant to replace the EFSF in 2013, and wants the government to veto any future bailout disbursements from the EFSF. When the Slovak government failed to meet its demands, the SaS said it would abstain from the vote. The socialist opposition has also said it will abstain.

However, parliament can call for a repeat vote, in which event the opposition has already indicated that it would back the measures, though it may make its own demands, including new elections.

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When the measures were proposed in July, they were thought imperative to combating the European debt crisis, but now they are seen as inadequate. Market analysts suggest that the fund needs to be nearer 2 trillion euros — more than 4 times the amount being proposed — in order to be effective.