Slovakia deadlocked on bailout fund

Slovakia’s governing coalition has failed to strike a deal to prevent the collapse of a plan to rescue heavily indebted European nations.

Prime minister Iveta Radicova said last night her four-party coalition, which met for three hours, was unable to agree on a compromise deal.

The 17 nations that use the euro must all approve expanding the powers of the bailout fund, which is designed to shore up Europe’s defences against the debt crisis, which has already seen three countries bailed out and Greece edging towards default.

Sixteen governments, including the powerhouse economies of Germany and France, already have approved the package of measures agreed to by eurozone leaders during a special summit in July. Tiny Malta’s parliament did that Monday night, leaving Slovakia as the only holdout.

“I have to say...that the coalition partners have failed to reach an agreement,” Radicova said in a brief statement about her governing coalition’s talks on Monday.

She declined to answer questions, but said the coalition’s talks would continue today, the day Slovakia’s parliament is due to vote on the EU bailout fund.

Slovakia, a nation of 5.5 million people, would contribute about 1%, or €7.7bn. With the help of EU funds and foreign investments, it has benefited significantly from its membership in the eurozone and the EU and has become a leading European car exporter.

Last week Ms Radicova warned that the “serious, dramatic, deepening crisis” in the eurozone “needs a quick solution”. She also said Slovakia was too small a country to face the eurozone’s debt crisis and its consequences alone.

The outcome of the Slovak parliamentary vote is uncertain because a junior member of the four-party governing coalition is strictly opposed to boosting the fund.

The party’s chairman, Richard Sulik, in a recent interview, called the expanded bailout fund “a road to hell” and vowed again yesterday to block it.

Before yesterday’s coalition meeting at the headquarters of his party in Bratislava, Mr Sulik said the fund “is a story about wasted time”, adding: “It’s been in place for a year and the situation is only getting worse.”

He said his party was trying to find a compromise deal that would prevent Slovak taxpayers from “paying a cent” but its proposal was rejected by the other parties. The proposal called for the creation of a parliamentary committee that would review any future loans from the fund with a right to veto it.

Mr Sulik declined to comment after yesterday’s coalition talks.

Without the votes from his party, the coalition government would have to rely on the opposition, but it is unlikely to provide any help.

The major opposition party, Smer-Social Democracy of former prime minister Robert Fico, supports the fund expansion in principle but was ready to vote for it in exchange for nothing less than early elections.

Analysts have warned that a Slovak vote against boosting the fund would send a bad signal to already nervous financial markets about the inability of eurozone countries to unite to tackle the debt crisis.

“It’s not only a Greek problem,” said Stratis Polychroneas, head of fixed income at Solidus Securities in Athens.

“It might have started from Greece because of the very high debt and excessive deficit, but the crisis has spread all over Europe, so there must be an action, a unanimous action, a unanimous decision from all members to protect the European Union at this point.”