Slovak govt parties hope of EFSF compromise

Euro zone minnows Slovakia and Malta are the last countries holding up new powers for the European Financial Stability Facility (EFSF), needed to fight a government debt crisis that is undermining Europe's banking sector and threatens to spill over into major economies Italy or Spain.

The row in Slovakia, which may bring down its cabinet, and a delay in ratification by Malta have highlighted how cumbersome decision making is in the 17-nation euro zone.

While the two hold-outs argue over the plan, agreed by euro zone leaders in July, debate in Europe has already shifted beyond, to securing even more firepower to the fund by leveraging it in some way.

The liberal Freedom and Solidarity (SaS) party, a junior partner in Slovakia's centre-right government, seemed to climb down from a categorical 'no' to the plan to beef up the fund but gave coalition partners a set of conditions including some that seemed hardly possible to accept.

The party's Vice-Chairman Lubomir Galko said the conditions could be met without a need to reopen any euro zone-wide agreements, which would be tough to swallow for Slovakia's partners at a time when the strengthened fund needs to be put in place quickly as Greece teeters on the brink of default.

"In my view this is a compromise that can be agreed on, and it can be negotiated on the national level," Galko told reporters.

Head of the ethnic Hungarian Most-Hid party, Bela Bugar, said an agreement was possible, and that SaS had indicated it may concede more ground.

"It is a proposal that gives hope that we will be able to reach a compromise solution," Bela Bugar, chief of the Most-Hid party said in a video interview.

The Slovak parliament will vote on the plan to allow the EFSF to buy government bonds, recapitalise banks and provide credit to countries in trouble on Oct. 11.

Slovakia has 5.4 million people and Malta just 418,000, out of the euro zone population of 332 million. The two countries together would guarantee just 8.4 billion euros out of the strengthened EFSF's 440 billion euro capacity.

The Netherlands, one of the biggest contributors to the EFSF, approved the plan on Thursday.

In Malta, the parliament delayed ratification on Thursday after a former prime minister raised objections to the text of a resolution presented to parliament.

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 leaders in Slovakia were expected to discuss the SaS proposal on Monday.

The SaS opposes any bailouts in the euro zone, especially if they come at the cost of taxpayers in Slovakia.

It says it would support strengthening the EFSF if other ruling parties agree to set up a parliamentary committee that would consider disbursements of EFSF money.

Each party would have a veto right, meaning the SaS could effectively block usage of the funds.

The committee could give a mandate to Slovakia's representative on the EFSF board, where unanimity is required for some decisions, like loans for distressed countries.

Germany has a somewhat similar system, although softer, under which the parliament gives the finance minister the mandate on how to vote on the EFSF board.

Another troublesome demand by SaS is that Slovakia stays out of a permanent bailout fund, called European Stability Mechanism (ESM), which the euro zone plans to put into operation as of 2013. Slovakia has already agreed to its creation.

The opposition Smer party has said it will not support the EFSF reforms on Oct. 11 although it agrees them 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, even if it meant the fall of the cabinet.

Copyright Reuters, 2011