Slovakia stalls on euro bailout

EYEBROWS are being raised in Europe over a tug of war taking place in Slovakia over whether to agree to participate in the European Union’s financial safety-net programme to support the eurozone. The outgoing Robert Fico-led government and its finance master, Ján Počiatek, declined to give the country’s consent to what the EU calls the European Financial Stabilisation Facility, a programme worth €750 billion, without the approval of the four-party right-wing coalition which will form Slovakia’s next government.

The Slovak Democratic and Christian Union (SDKÚ), Christian Democratic Movement (KDH), Freedom and Solidarity (SaS) and Most-Híd, the quartet which has now been charged with forming the next government, has said that Fico and his team should have completed the process of approving the mega-loan, designed initially to assist the ailing Greek economy, and Slovakia’s share in the euro-area bailout package. The new coalition noted that the Fico government gave assurances to the EU before the election without consulting the then opposition.

Fico warned that the Slovak right-wing, by its refusal to support both the mega-safety net and the bailout for Greece, is undermining the idea of European solidarity. Yet the local tug of war has provoked the ire of some EU figures since only Slovakia’s signature is now missing from the deal, which is supposed to shelter eurozone members who find themselves affected by financial trouble similar to that of Greece.

“The prime minister has taken on some obligations, and so he should also wrap up the process,” Slovakia’s prospective prime minister, Iveta Radičová, said.

The European Financial Stabilisation Facility was set up following EU concerns about the stability of the eurozone, which has been shaken by Greece’s financial woes. Eurozone finance ministers, including Slovakia’s Počiatek, agreed to the multi-billion rescue deal for Greece in early May, with Slovakia expected to contribute €800 million to the bailout. But since Slovakia does not have such funds immediately available to contribute to the Greek rescue deal, the country would itself have to take on more debt to, in effect, help service Greece’s.

EU officials expressed impatience with the tussle over whether Slovakia should sign either the stability plan or the rescue deal for Greece.

“We expect all Euro area member states to respect their agreement from 9 May and to complete the proceedings to set up the European Financial Stabilisation Facility (EFSF, [worth] €440 billion) soon,” Amadeu Altafaj i Tardio, an EC spokesperson speaking on behalf of Commissioner for Economic and Monetary Affairs Olli Rehn, told The Slovak Spectator. “This is a matter of fundamental solidarity in the Euro area, and all its member states should respect their commitments without delay.”

The EFSF is composed of two separate instruments: aside from the larger amount, an EC reserve of €60 billion is ready and available if needed, according to Altafaj i Tardio.

The International Monetary Fund would contribute €250 billion to the EFSF, while member countries are expected to pour in €440 billion. Slovakia’s share would stand at €4.5 billion.

Upon his return from a visit to Brussels on June 18, Fico said that other European leaders do not understand the attitude of the right-wing politicians in Slovakia who are rejecting the European safety net and the loan for Greece.

“They all asked me about it,” Fico said, as quoted by SITA newswire. “This question, however, should go to the politicians who are rejecting it and not me.”

Some observers, as well as the centre-right parties, have described Fico’s claim that he cannot seal the deal without the mandate of the next government as somewhat hypocritical.

“The conditions of Slovakia’s participation in the EFSF were negotiated by the government of Fico without consulting on the issue with representatives of other parliamentary parties, despite the fact that the European Union agreed on this package one month before the parliamentary elections,” Ivan Kuhn of the Conservative Institute think tank told The Slovak Spectator.

According to Kuhn, Fico knew there was a possibility that after the elections power could change hands and that Slovakia might get a new government made up of different parties.

“And this new government would take over responsibility for Slovakia’s participation in this mechanism and the new parliament would have to approve Slovakia’s share in it,” Kuhn said. “In the parliament, we still have a strong committee for European affairs, which could negotiate such important agreements and obligations.”

Fico insisted that his existing government only has a formal mandate. He also stressed that the centre-right parties clearly declared ahead of the parliamentary elections that they disagreed with the measures.

“It is unavoidable that they take responsibility for the rule they are preparing for,” said Fico, who rejected pre-election calls for a debate on Slovakia’s proposed €800-million contribution to the Greek bailout.

There was intense debate in late June about the impact that a Slovak rejection could have on the functioning of the eurozone mechanism.

“The European Financial and Stabilisation mechanism can work in terms of [its] legal and economic aspects without Slovakia,” Kuhn said. “Slovakia’s contribution is only a small fragment of the financial package. Yet the rescue package was created de facto beyond the legislative framework of the EU, so the presence of all the EU members is not necessary.”

Počiatek warned that it is “no game with balls in the sand” and that the possible consequences of Slovakia’s rejection could be serious. Observers are divided on the possible effect of an eventual Slovak “no”. Some say it could turn Slovakia into the black sheep of Europe, while others have opined that the practical impact would be minimal and that the political aspect of the issue is much stronger than the economic one.

According to Kuhn, a Slovak “no” would mean that the country would make the cover pages of European dailies for a couple of days and that some European leaders would address sharply critical comments towards Slovak politicians. Kuhn also suggested that if Slovakia were to lobby at the EU level for some specific demands in the future it might meet with a rather frosty response.

“But in no way do I agree that Slovakia in such a case would find itself rejected by the rest of the EU and that we would be punished,” Kuhn told The Slovak Spectator. “This is something that the EU and its member countries cannot afford to do to another member country.”

Kuhn also said that the creation of the European Financial Stabilisation mechanism without Slovakia’s participation is not a serious problem for the EU on a practical level.

“It is a problem at a political level because the politicians who proposed such solutions will no longer be able to tell their opponents that such a solution is the result of a consensus across the whole European Union or the whole eurozone,” Kuhn told The Slovak Spectator. “Undoubtedly, within the eurozone voices will grow stronger so that the situation is solved in such a way that those “guilty” [of excess spending] would pay a toll for their budgetary policies.”

According to Kuhn, a Slovak “no” would probably inspire a discussion about whether countries that observe the rules of the eurozone, even at the price of carrying out tough reforms that have a negative short-term impact on part of the population and could contribute to the fall of the governments that undertake them, have a moral duty to contribute to the rescue of countries that have pursued populist rather than responsible budgetary policies.

As for how Slovakia’s decision might be perceived by other member countries, Kuhn says that if Slovakia is going to be the only rejecting country, it would certainly attract criticism from those who contribute a share to the mechanism.

“On the other hand, perhaps in every country of the eurozone there are also critical voices, either in political or in economic circles, as regards the mechanism and these would obviously appreciate Slovakia’s rejectionist attitude,” Kuhn said. “A considerable part of the eurozone disagrees that those who keep the rules of the eurozone must pay for those who are violating or have violated these rules.”

An analyst with the Brussels Centre for the Study of European Policies, Piotr Kazynski, was quoted by the Sme daily as saying that Slovakia will not have much choice.

“The new government will have to change its attitude, there is no other way,” he said. According to Zsolt Darvas of the Bruegel economic think tank, for Slovakia the moral and political obligation is very important. He told Sme that Slovakia’s failure to agree on the stability package would be a much larger problem than the country’s failure to approve the loan for Greece.