Slovakia fails to end rift over euro fund

Parties in Slovakia's center-right government failed to overcome a rift over a plan to expand the euro zone's financial safety net on Tuesday but said more talks would be held ahead of a ratification vote in parliament next week.

Slovakia is one of three countries remaining in the 17 member currency bloc to approve a deal to beef up the European Financial Stability Facility (EFSF), a fund aimed at preventing the Greece debt crisis from spiraling out of control. The two other countries are the Netherlands and Malta.

Prime Minister Iveta Radicova has agreed to expand it to 440 billion euros and give it more rescue powers, but her governing partner, the liberal Freedom and Solidarity (SaS) party, has dug in its heels against ratification.

The row has brought the four-party coalition to the brink of collapse and party leaders failed to reach an agreement on Tuesday evening on a secret compromise proposal from Radicova aimed at winning over SaS leader Richard Sulik.

"So far there has been no agreement on the euro bailout fund, talks will continue, we have a week left," said Bela Bugar, head of the Most-Hid party.

Sulik, who says the euro zone's second poorest member should not have to bail out richer states that have overborrowed and overspent, told Austrian daily Der Standard what his party's position was.

"If there is a model in which Slovak taxpayers have to pay nothing, that would be acceptable for us," he was quoted as saying in an interview conducted on Monday evening. "I have received a proposed solution that is supposed to secure this. But I cannot imagine approving the model at this stage."

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.

Bugar said the parties agreed on Tuesday a vote in the chamber on October 11, ahead of an EU leaders meeting on October 17.

Although no cash is involved upfront, Sulik objects to the prospect that Bratislava could be on the hook if a country defaults and does not pay back the Fund. The entire coalition refused to contribute to a first Greek bailout in 2010.

Besides increasing its size, the expansion would allow the EFSF to prop up banks, give loans to countries and buy state bonds on the market -- steps seen as vital to ensuring a Greek default does not engulf other euro states like Italy or Spain.

There is Hope for EFSF

Without Slovakia's approval, the EFSF's expanded powers cannot go live, a point that highlights the euro zone's tortuous decision-making process and coincides with criticism from other world capitals that Europe is taking too long to fix the crisis.

Sulik, a co-author of a 19 percent flat tax introduced in 2004, controls 21 of the coalition's 77 deputies with his SaS party, so his votes are vital to winning a majority in the 150-seat house.

Political analysts have warned that animosity among the ruling parties in Bratislava had risen to a boiling point and if SaS did not back down the government could collapse.

"My personal opinion is that both sides have gone too far to turn back. Therefore I see the most likely scenario as one in which they will not be able to strike a deal," he said.

The only alternative to a coalition majority would be for Radicova to cut a deal with the leftist opposition party Smer.

Smer supports the EFSF changes but has refused to back them unless the coalition does too, a stance analysts say it could use to bring down the government and prompt snap elections while also pushing the euro zone safety net through.

Sulik's refusal to support Greece has lifted SaS in opinion polls, with a survey from the Polis agency showing its support at 8 percent last month, from an earlier 6.1 percent, while his fellow ruling parties have seen their popularity fall.

Sharing a border with Ukraine, the country of 5.4 million people has spent a decade transforming its once centrally-planned economy by selling state companies, cutting entitlements and boosting budget revenues with the flat tax.

Its efforts lured investment in the shape of foreign-owned manufacturing plants -- Slovakia now leads the world in cars produced per capita -- and boosted growth to above 5 percent from 2004 to 2008.

But purchasing power is stuck at 74 percent of the EU average, versus Greece's 89 percent. Salaries averaging about 780 euros a month, just over Greece's minimum salary of 750 euros, leave little room for sympathy for Greeks hit by that country's efforts to shrink its huge budget deficit.

"I think that even if Greece went bankrupt, people in other countries would understand what it means and would start saving," said Viera Reznikova, a 52-year-old accountant from Liptovsky Hradok, some 300 km from Bratislava.

With polls showing 50 percent of Slovaks against supporting Greece and other indebted but richer euro members, there is solid public pressure not to spend Slovak tax revenue to help the bloc's most vulnerable members.

"The EFSF only postpones and worsens the problems. A further bailout will not help Greece," wrote commentator Juraj Karpis, from the Iness Institute for tabloid website Novy Cas online.

[Source: By Martin Santa, Reuters, Bratislava, 04Oct11]

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