Slovak parliament rejects euro rescue fund in first vote

BRATISLAVA Tue Oct 11, 2011 5:16pm EDT

1 of 2. Slovak Prime Minister Iveta Radicova makes a last appeal to deputies at the Slovak Parliament session before the vote on the euro zone rescue fund tied with Slovak government confidence vote in Bratislava October 11, 2011.

Credit: Reuters/Petr Josek

BRATISLAVA (Reuters) - Slovakia's parliament on Tuesday brought down the government by rejecting a plan to expand the euro zone's EFSF rescue fund, crucial to containing a spreading debt crisis.

However, the outgoing finance minister, Ivan Miklos, said the plan could still be approved by the end of the week.

Prime Minister Iveta Radicova had made the issue into a vote of confidence to try to prevent one of her coalition partners, the liberal Freedom and Solidarity (SaS) party, from opposing the EFSF, but in vain.

The count showed 55 votes in favor and nine against out of a chamber of 150 deputies. The remainder, including the SaS deputies, were absent or did not register a vote, and a majority of all seats was required for the motion to pass.

Radicova is expected to call another vote that is likely to pass comfortably with the support of the main opposition party, Smer, which had demanded a reshuffle or resignation as the price for its support.

"There is an assumption that the EFSF, one way or the other, will be approved by the end of the week," Miklos told parliament ahead of the vote.

Slovakia is the only euro zone member yet to ratify the deal.

The prospect of further delays to the ratification of expanded powers for the European Financial Stability Facility (EFSF) hit markets already under pressure from signs that the crisis is spilling beyond Greece's borders.

Even as Slovakia wrangles over the July agreement, euro zone leaders are scrambling to give the 440 billion euro ($600 billion) safety net even greater clout.

The leftist opposition Smer party has repeatedly said it supports the EFSF plan in principle and is ready to discuss backing it once the government is out of office.

"Smer is curious to see what the ruling coalition parties will propose in return for a fast-track vote and approval of this vital document for Slovakia," Smer's leader, former prime minister Robert Fico, told parliament.

"Smer is ready for this discussion."

A senior Smer official said he believed a new vote would be held "as soon as possible."

RAPID APPROVAL NOW?

Political analyst Grigorij Meseznikov said that, while talks on forming a new cabinet may take weeks, approval of the EFSF plan could come fast.

"I expect that quite quickly after the fall of this cabinet the rescue fund will be approved, within four days, because we are in a newly defined situation and Fico will position himself as the savior of the euro zone and Slovakia," he said.

The SaS had argued that, as one of the poorest members of the single currency club, Slovakia should not pay for debts racked up by richer countries.

"These are things that severely damage Slovakia. Slovakia is not responsible for saving the world," SaS leader Richard Sulik said ahead of the vote.

While Slovakia has been dragging its feet, euro zone leaders are discussing further action.

Germany and France, the leading powers in the bloc, have promised to propose a comprehensive strategy to fight the debt crisis at the EU summit, and there is a growing acceptance that a second Greek bailout agreed in July along with the EFSF expansion may not be sufficient.

A rush is now on to further beef up the rescue fund and shore up banks. European Central Bank President Jean Claude Trichet said on Tuesday the crisis had become systemic and could threaten global economic stability.

The EFSF agreement is intended to increase its coffers, allow it to buy bonds from the market to support countries under attack, bail out members who need funding and help them prop up failing banks.

Assuming Slovakia's parliament does eventually ratify the EFSF, lawmakers must adjust domestic legislation to implement the deal -- an issue analysts say should not pose a problem once Radicova secures the necessary support.

SLOVAKS FROWN AT BAILOUTS

Radicova said last week she was personally committed to ratifying the agreement by October 14 ahead of a meeting of euro zone leaders -- which has now been pushed back by a week to October 23.

Under the constitution, she will now have to resign but will stay in office until a new administration is in place. President Ivan Gasparovic must find a new prime minister. An early election is possible but is not a given.

Trepidation over the Slovak vote showed in markets on Tuesday. European shares fell after a four-day rally.

Sulik said he understood that markets welcomed governments pouring taxpayers' money into the private sector to prevent institutions failing, but that the approach had to be resisted.

"We simply must not be afraid of this," he said.

"When bourses fall and shares go down, let them. They will be cheaper and more people will buy them. This is called supply and demand."

A poll on Monday indicated that almost half of Slovaks support expanding the euro zone safety net, with 36 percent opposed, and many cringe at the idea that Slovakia could help trigger a new global economic downturn like the one that sent the export-dependent country into recession two years ago.

But with Slovak salaries averaging just 780 euros a month -- just a touch above Greece's 750 euro minimum wage -- many people in the country of 5.4 million also bridle at the thought of footing the bill for overspending in Athens, Dublin or Rome.

Last year, the Slovak ruling parties campaigned on pledges not to support the first bailout of Greece, and Slovakia duly stayed out of that package.

(Additional reporting by Petra Kovacova; Writing by Michael Winfrey and Jan Lopatka; Editing by Kevin Liffey)