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UPDATE 3-Slovak party sets tough conditions for EFSF approval
October 6, 2011 / 10:55 AM / 6 years ago

UPDATE 3-Slovak party sets tough conditions for EFSF approval

* Renegade govt party wants out of ESM for supporting EFSF

* Senior government source says plan not acceptable

* Slovak lawmakers vote on Oct. 11, govt future at stake

* Coalition source says EFSF to go through eventually (Adds SaS comments, proposal details, govt source)

By Martin Santa and Michael Winfrey

BRATISLAVA, Oct 6 (Reuters) - A junior Slovak government party wants the country out of the euro zone's planned permanent bailout mechanism in return for supporting a plan to give more firepower to a temporary rescue fund, a demand unlikely to win support at home and abroad.

The proposal by the liberal Freedom and Solidarity party (SaS), seen by Reuters, was presented to the three other ruling parties on Thursday and will be debated ahead of a parliamentary vote next week.

Lawmakers in all but three euro zone states have ratified the plan agreed by policymakers in July to give a stronger mandate to the European Financial Stability Facility (EFSF), allowing it to recapitalise banks, buy government bonds and give credit to troubled countries.

But the SaS has blocked approval in Slovakia on the grounds that Slovaks should not bail out richer countries such as Greece that got into fiscal troubles because of profligate spending.

The SaS stance has held up progress in fighting the euro zone's deepening debt crisis and brought Slovakia's governing coalition to the brink of collapse.

"I hope (our plan) will be accepted," Richard Sulik, the parliamentary speaker and head of SaS, told reporters after leaving the meeting of coalition parties.

"More time is needed to debate the proposal."

The permanent European Stability Mechanism (ESM), which SaS would like to pull out of, is due to operate from 2013.

A senior government source told Reuters the SaS demand was not a workable solution and would also not be acceptable for European partners, leaving the ratification process in Slovakia up in the air.

The SaS also proposed the formation of a parliamentary committee that would vote on each disbursement of EFSF loans. Each party would have a veto.

Parliaments in Malta and the Netherlands have also yet to vote. While Dutch deputies were expected to give the deal their blessing later on Thursday, opposition in the smaller two countries is becoming more entrenched, complicating the currency bloc's efforts to contain the crisis.

Overnight, Malta delayed ratification of the plan after a former prime minister raised legal objections to the text of a resolution presented to parliament.

Even as the Slovaks and Maltese wrestle over the July agreements, European leaders have already moved beyond that stage as the crisis intensifies and are scrambling to prevent a default by Greece that could drag larger euro states like Italy or Spain deeper into financing trouble.

Slovakia, the second poorest euro zone country and one that endured a period of tough reforms before adopting the euro in 2009 in the midst of a global financial crisis, has caused trouble over bailouts before.

It refused to take part in last year's aid package for Greece, prompting European Central Bank President Jean-Claude Trichet to say that the ECB would have kept the country out of the euro zone if it had known it would not show solidarity.

COALITION AT RISK BUT EFSF WILL GO THROUGH

Slovak coalition leaders were meeting on Thursday to try to get SaS, which adamantly opposes any bailout fund or aid package for Athens, on board ahead of the Oct. 11 parliamentary vote.

Finance Minister Ivan Miklos, declined to comment on the proposal when he arrived at the meeting.

Under the July agreement by euro zone leaders, Slovakia would have to increase its share of guarantees under the EFSF to 7.727 billion euros from 4.371 billion now.

The opposition Smer party has said it will not support the EFSF reforms in the Oct. 11 vote, although it agrees with the plan in principle.

Party leader Robert Fico has said he would support the plan in a repeated vote if the first one fails, but only if the government coalition quits and agrees to a government reconstruction or an early election.

A senior coalition leader, who asked not to be quoted by name, told Reuters on Thursday the EFSF plan would go through one way on the other.

"The portrait of the end-game is Slovakia saying 'yes', but at home it will be difficult to say what will happen -- the reconstruction of the government, a minority government, or early elections," the leader said.

Political analysts have said the coalition is on the brink, but all the government parties have an incentive to avoid an early election given they lag the opposition in opinion polls.

"They don't want a new election. Fico is still popular and no one really wants to join him ... They don't want to split," said Samuel Abraham, political analyst and president of the Bratislava International School of Liberal Arts. (Editing by Mark Heinrich)

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