Slovakia Ratifies Euro Bailout Fund

Slovakia Ratifies Euro Bailout Fund

Slovakia approved Europe’s enhanced bailout fund, completing ratification across the 17 euro countries as the region’s leaders prepare for a summit.

Lawmakers voted 114 to 30 with three abstentions to support the European Financial Stability Facility in the second attempt this week after parliament failed to approve the measures on Oct. 11.

Enhancing the powers of the EFSF, the temporary bailout fund, is crucial for adopting the key element in the strategy to prevent contagion from the debt crisis that has spread from Greece to other countries. European Commission President Jose Barroso yesterday called for a reinforcement of crisis-hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund to ease debt woes.

“It’s totally significant,” Michael Ganske, head of emerging-markets research at Commerzbank in London said by phone. “This pointed out the risks to the measures. It’s not one decision maker, it’s 17, and a small country like Slovakia can create trouble.”

The expanded powers of the 440 billion-euro ($600 billion) EFSF would allow the fund to buy the debt of stressed euro-area nations, aid troubled banks in the region and offer credit lines to governments. The EFSF’s current role is to sell bonds to finance rescue loans.

‘Political Uncertainties’
Opposition leader Robert Fico’s Smer party didn’t back the measure on Oct. 11 because the vote was tied to a no-confidence motion against Radicova’s Cabinet, which fell when the bailout’s overhaul was rejected.

“The price was high, but I am glad that Slovakia at the end delivered on its commitments and we don’t block this tool for the euro zone to stem the crisis,” said Finance Minister Ivan Mikos after the vote.

German and French leaders at a meeting on Oct. 9 pledged to devise a plan to recapitalize banks, help Greece and strengthen Europe’s economic governance. German Chancellor Angela Merkel, after meeting French President Nicolas Sarkozy, said Europe will do “everything necessary” to ensure that banks have enough capital.

“The second vote in Slovakia will pave the way for the EFSF, however, that does not constitute a solution,” Lutz Karpowitz, an analyst at Commerzbank AG in Frankfurt, wrote in an e-mailed note today. “The EFSF would still be too small to support countries like Italy or Spain should the necessity arise. The recent recovery of the euro seems to have gone rather far considering the news flow.”

The Slovak vote and Barroso’s plan “might have raised hopes that euro area politicians might step up to the plate at their summit in 10 days’ time,” Emily Nicol, a London-based analyst at Daiwa Capital Markets, wrote in an e-mailed note. “But on closer inspection Barroso’s proposals were flimsy, if not quite a case of the Emperor’s new clothes.”

source: bloomberg.com