It has been a member of the eurozone for less than three years and is one of its poorest members. Yet on Tuesday night Slovakia torpedoed the bill to boost the powers and size of the multibillion euro bailout fund designed to rescue Greece and other indebted countries.
Rejection of the proposal also triggered the collapse of the fragile four-party coalition which has been ruling Slovakia since July last year.
The prospect of a "no" vote unsettled the markets all day and prompted the European Central Bank head Jean-Claude Trichet to warn the political deadlock "threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond."
After eight hours of testy debate in parliament, the measure calling on Slovakia to support the revamp of the bailout fund failed to pass by 21 votes.
"Today we saved more than €300bn for the European taxpayers that would have been used to bail out banks," said parliament speaker Richard Sulik, who led parliament's opposition to the expansion of the European Financial Stability Facility (EFSF).
Each of the other 16 states using the common currency have already voted through plans to expand the powers of the EFSF, which requires unanimous support to go into effect. But Slovakia, with a population of just 5.5 million and a GDP representing a mere 0.5% of the European Union's whole, rejected the measure.
Only 55 of the parliament's 150 MPs supported the bill; nine voted against it and 60 failed to take part in the ballot, most of them in a deliberate boycott organised by Sulik's Freedom and Solidarity party (SaS), which until Tuesday night was part of the ruling coalition.
Though the vote is likely to pass on a second reading by the end of the week, the defeat temporarily sets back efforts to address Europe's debt jam, which has been the most important issue for financial markets for months. Investors worry that if Europe doesn't contain its debt crisis, a default by the Greek government could deliver a devastating blow to European banks and cause them to freeze up lending. As well as having more firepower at its disposal, the EFSF would be able to lend quickly to banks and governments and buy up the bonds of troubled countries in the markets. Slovakia is being asked to fork out €7.7bn – an amount equal to roughly 12% of its annual economic output.
Without a "yes" from Slovakia, the backstop fund cannot act proactively, further complicating the eurozone's efforts to deal with a crisis that has already seen three countries get bailouts and raised fears of a Greek default and massive losses for banks.
The Slovakian prime minister Iveta Radicova did not hide her anger after the defeat. Red-eyed but defiant, the 54-year-old, a professor of sociology, railed against what she perceives to be the shortsightedness of Sulik and the SaS.
"Where would we be without the support and help from our friends in the eurozone?" she asked reporters, hitting out at the "misconception" that the EFSF's function was simply to hand money to less prudent neighbours. If another euro country fails, so does Slovakia, she suggested. "Our economy is 80% open and if the citizens of Spain and Portugal have no money to buy cars made here in Slovakia then that will be bad for us. Everything is connected."
She said the "no" vote sent damaging signals to the outside world and could make foreigners less likely to invest in Slovakia and provide much needed jobs.
Following the vote, cross-party politicians agreed to swift talks aimed at passing the EFSF bill on the second attempt. "We decided that we have to do it as soon as possible," said Radicova.
With the coalition in tatters, the opposition Smer party, led by former prime minister Robert Fico, are widely expected to vote for the measure next time. Fico, who would like his old job back, has said he supported the bill on an ideological level but refused to help Radicova unless she promised either a radical cabinet reshuffle or fresh elections. With the latter now firmly on the cards, his party will almost certainly vote for the bailout. "Slovakia has to approve the fund," he said.
During the pre-vote debate, MPs supporting the bill spoke passionately in the chamber, some invoking the old ghosts of Slovakia's communist past in order to tug at the consciences of the rebels. Christian democrat Martin Fronc asked SaS if they wanted to go back to the cold war years of isolation from western Europe "where everybody nodded his head pretending they were living a good life".
Although many ordinary Slovaks are losing patience in helping much wealthier countries that lacked the discipline to follow the eurozone's rules, many fear a return to the bad old days. Shopping in Bratislava city centre , one 69-year-old pensioner said she found it hard to swallow the €350 a month she gets by on each month, knowing that the average Greek pensioner takes home €1,200. But she insisted it was "definitely" the right decision for Slovakia to join the euro. "Compared to communism, this is so much better," she said. "I want my children and grandchildren to have the freedoms that we didn't have."
Mariana Kocisikova, 40, a shop assistant in the Dr Feelgood cosmetic store in Bratislava's old town, said that Slovakia had received help from Europe when breaking free of its communist past. The parliament had a duty to vote through the EFSF expansion, she said - "perhaps one day we could be in the same situation as the Greeks and need help."
It is not for the first time Slovakia has been against major eurozone policies since it adopted the currency in 2009. Last year, it rejected providing its 800 million euro share of the 110 billion EU bailout plan for Greece. That rescue went ahead without Slovakia, but another exemption for the country would cast doubt over the eurozone's credibility and ability to function as a bloc.
Nonetheless, many analysts are surprised at the power the small country wields. As Greg Anderson of Citigroup put it: "it seems somewhat unfathomable that a country that has not been a member of EMU for even three years could be the one leading to its unravelling."
by Helen Pidd taken from http://www.guardian.co.uk/business/2011/oct/11/europe-waits-as-slovakia-debates
Rejection of the proposal also triggered the collapse of the fragile four-party coalition which has been ruling Slovakia since July last year.
The prospect of a "no" vote unsettled the markets all day and prompted the European Central Bank head Jean-Claude Trichet to warn the political deadlock "threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond."
After eight hours of testy debate in parliament, the measure calling on Slovakia to support the revamp of the bailout fund failed to pass by 21 votes.
"Today we saved more than €300bn for the European taxpayers that would have been used to bail out banks," said parliament speaker Richard Sulik, who led parliament's opposition to the expansion of the European Financial Stability Facility (EFSF).
Each of the other 16 states using the common currency have already voted through plans to expand the powers of the EFSF, which requires unanimous support to go into effect. But Slovakia, with a population of just 5.5 million and a GDP representing a mere 0.5% of the European Union's whole, rejected the measure.
Only 55 of the parliament's 150 MPs supported the bill; nine voted against it and 60 failed to take part in the ballot, most of them in a deliberate boycott organised by Sulik's Freedom and Solidarity party (SaS), which until Tuesday night was part of the ruling coalition.
Though the vote is likely to pass on a second reading by the end of the week, the defeat temporarily sets back efforts to address Europe's debt jam, which has been the most important issue for financial markets for months. Investors worry that if Europe doesn't contain its debt crisis, a default by the Greek government could deliver a devastating blow to European banks and cause them to freeze up lending. As well as having more firepower at its disposal, the EFSF would be able to lend quickly to banks and governments and buy up the bonds of troubled countries in the markets. Slovakia is being asked to fork out €7.7bn – an amount equal to roughly 12% of its annual economic output.
Without a "yes" from Slovakia, the backstop fund cannot act proactively, further complicating the eurozone's efforts to deal with a crisis that has already seen three countries get bailouts and raised fears of a Greek default and massive losses for banks.
The Slovakian prime minister Iveta Radicova did not hide her anger after the defeat. Red-eyed but defiant, the 54-year-old, a professor of sociology, railed against what she perceives to be the shortsightedness of Sulik and the SaS.
"Where would we be without the support and help from our friends in the eurozone?" she asked reporters, hitting out at the "misconception" that the EFSF's function was simply to hand money to less prudent neighbours. If another euro country fails, so does Slovakia, she suggested. "Our economy is 80% open and if the citizens of Spain and Portugal have no money to buy cars made here in Slovakia then that will be bad for us. Everything is connected."
She said the "no" vote sent damaging signals to the outside world and could make foreigners less likely to invest in Slovakia and provide much needed jobs.
Following the vote, cross-party politicians agreed to swift talks aimed at passing the EFSF bill on the second attempt. "We decided that we have to do it as soon as possible," said Radicova.
With the coalition in tatters, the opposition Smer party, led by former prime minister Robert Fico, are widely expected to vote for the measure next time. Fico, who would like his old job back, has said he supported the bill on an ideological level but refused to help Radicova unless she promised either a radical cabinet reshuffle or fresh elections. With the latter now firmly on the cards, his party will almost certainly vote for the bailout. "Slovakia has to approve the fund," he said.
During the pre-vote debate, MPs supporting the bill spoke passionately in the chamber, some invoking the old ghosts of Slovakia's communist past in order to tug at the consciences of the rebels. Christian democrat Martin Fronc asked SaS if they wanted to go back to the cold war years of isolation from western Europe "where everybody nodded his head pretending they were living a good life".
Although many ordinary Slovaks are losing patience in helping much wealthier countries that lacked the discipline to follow the eurozone's rules, many fear a return to the bad old days. Shopping in Bratislava city centre , one 69-year-old pensioner said she found it hard to swallow the €350 a month she gets by on each month, knowing that the average Greek pensioner takes home €1,200. But she insisted it was "definitely" the right decision for Slovakia to join the euro. "Compared to communism, this is so much better," she said. "I want my children and grandchildren to have the freedoms that we didn't have."
Mariana Kocisikova, 40, a shop assistant in the Dr Feelgood cosmetic store in Bratislava's old town, said that Slovakia had received help from Europe when breaking free of its communist past. The parliament had a duty to vote through the EFSF expansion, she said - "perhaps one day we could be in the same situation as the Greeks and need help."
It is not for the first time Slovakia has been against major eurozone policies since it adopted the currency in 2009. Last year, it rejected providing its 800 million euro share of the 110 billion EU bailout plan for Greece. That rescue went ahead without Slovakia, but another exemption for the country would cast doubt over the eurozone's credibility and ability to function as a bloc.
Nonetheless, many analysts are surprised at the power the small country wields. As Greg Anderson of Citigroup put it: "it seems somewhat unfathomable that a country that has not been a member of EMU for even three years could be the one leading to its unravelling."
by Helen Pidd taken from http://www.guardian.co.uk/business/2011/oct/11/europe-waits-as-slovakia-debates
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