Slovakia Clears Way to Approve Enhanced Rescue Fund

Slovak lawmakers will meet today to effect a deal to approve the new European Union bailout fund and set new elections for next spring. The deal is expected to be confirmed by a parliamentary vote later in the day today or on Friday.

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During the afternoon on Thursday, parliamentary committees will go over the two bills, with debates beginning at 2 p.m. GMT. The timing of the actual vote has yet to be determined, and will depend on quickly the bill on snap elections passes.

Though the measure to enhance the European Financial Stability Facility was voted down by parliament on Tuesday, Slovak party leaders brokered a deal on Wednesday that paved the way for its approval. Members of the ruling coalition agreed to a demand by the opposition Smer-Social Democracy party to set a date for new general elections two years earlier than planned in exchange for Smer support of the bill.

Slovak ratification will boost the EFSF’s lending capacity to as much as 440 billion euros, from about 250 billion euros now. The measures to increase the bailout fund’s powers must be approved unanimously by all members of the single-currency region. Of the euro zone’s 17 member nations, only Slovakia has yet to adopt the enhanced rescue fund. The measures will also give the EFSF power to buy government bonds in the secondary market and help countries recapitalize their banks, among other things.

In Slovakia, the matter of the new EFSF has been deeply controversial. On Tuesday, the right-of-center government collapsed after one of its junior coalition parties voted against endorsing changes to the bailout fund. Prime Minister Iveta Radicova has linked the EFSF vote to a vote of confidence, splitting Slovak politicians wary of using taxpayer money to prop up banks in other European countries. 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.

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Pro-EFSF leaders in the coalition cabinet agreed yesterday to clear the path for early elections, the only condition set by the Smer party in return for approval of the EFSF’s expansion. The pact is now backed by 115 lawmakers in the 150-seat parliament. Though Slovak approval of the bailout fund will wrap up its ratification process, governments will still have to work out whether the facility should be further leveraged to increase its lending power beyond the foreseen 440 billion euros. Economists have lately suggesting that the fund should be increased to 2 trillion euros.