Slovakia set to approve EFSF expansion despite political drama

Despite the Slovakian government failing to vote in favour of granting the European financial stability facility (EFSF) further powers, it is likely to approve the EFSF by the end of this week.

Slovakia was the last of the 17 eurozone member countries that needed to approve an expansion of the EFSF’s powers.

The expansion was agreed by eurozone leaders in July but needed to be ratified by each country.

The enhanced EFSF is meant to have wider powers and a greater lending capacity of up to €440bn from its current lending limit of €250bn.

On October 11 55 Slovak parliamentarians out of 150 voted in favor of the EFSF. Nine voted against and 60 abstained.

Opposition to the EFSF enhancement was led by Richard Sulik, the president of the Slovakian parliament and leader of the minority Freedom and Solidarity party which he established in 2009.

The vote was also tied to a vote of confidence in Prime Minister Iveta Radicova, head of Slovak Democratic and Christian Union – Democratic Party.

Failure to get the EFSF motion passed has led to the dismissal of her four-party center-right coalition government formed in July 2010.

Slovakia’s President Ivan Gasparovic is expected either to appoint an interim cabinet or ask the outgoing government to continue running the country until the next general election, which was not due to take place until 2014.

However, Slovakia is still set to approve the EFSF enhancement despite the political disruption.

Slovak opposition leader Robert Fico has indicated his Direction – Social Democracy party (Smer) would support the EFSF in a second ballot, likely to be held this week, now Radicova’s government has been supplanted.

The presidents of the European Council Herman Van Rompuy and José Manuel Barroso also underlined their confidence in the Slovak authorities and its parliament to recognise the “critical importance” of an enhanced and more flexible EFSF “to preserve financial stability in the euro area”.

In a statement published by the European Council, the pair said that enhancing the EFSF “is in the interest of all euro countries, including the Slovak people”.

“Our common currency plays a crucial role in investment decisions, in growth, in jobs. This is about the prosperity of us all,” they added.

Barroso and Rompuy urged Slovakian politicians to put regional politics to one side for the greater good of the eurozone.

“We call upon all parties in the Slovak Parliament to rise above the positioning of short term politics, and seize the next occasion to ensure a swift adoption of the new agreement,” they declared.

Meanwhile a review from the the European Commission, European Central Bank and International Monetary Fund , commonly referred to as Troika, underlined just how much further help Greece is likely to require.

The report’s conclusions on Greece’s growth and its deficit reduction capacity were disconcerting.

It said that the recession in Greece “will be deeper than was anticipated in June and a recovery is now expected only from 2013 onwards.”

“There is no evidence yet of improvement in investor sentiment and the related increase in investments, in part because the reform momentum has not gained the critical mass necessary to begin transforming the investment climate,” it added.

Troika noted that Greece would not be capable of meeting its fiscal target for 2011, partly because of a further drop in GDP, but also because of “slippages in the implementation of some of the agreed measures.”

It expects another tranche of €8bn to become available in early November once the Eurogroup (the eurozone’s finance ministers) and the IMF’s executive board have approved the conclusions of its review.

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