Slovakia's leaders pledge to rescue euro bailout bill

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The Independent Online

Slovakia's leaders have pledged to rescue a key euro bailout bill rejected by parliament, triggering the collapse of its government and threatening Europe-wide efforts to ease the debt crisis threatening the world's economy.

But late last night the outgoing prime minister and her main opponent said they would now work to approve the bill quickly.

The agreement to talk came shortly after parliament voted against an expanded euro bailout fund - a vote that prime minister Iveta Radicova had tied to a confidence measure.

Parliament is due to convene again tomorrow, but it is not clear when another vote might be held.

The eyes of officials and investors around the world are on the small central European country, because expanding the fund requires the approval of all 17 countries that use the euro. Sixteen countries have already approved and now Slovakia - with a population of just 5.5 million people - holds in its hands the fate of a measure that will affect all Europe, and by extension, the global economy.

But the statements of the country's leading politicians left little doubt the Slovakian parliament would approve the measure soon.

"We decided that we have to do it as soon as possible," Ms Radicova said after announcing her party would hold talks with the primary opposition party, led by former prime minister Robert Fico.

Mr Fico took much the same line, saying: "Slovakia has to approve the fund."

Mr Fico and his party had always supported expanding the fund expansion in principle, but said it would vote Yes only if the government agreed to call early elections.

Although approval of the measure seems likely, the drama and brinkmanship highlighted what has become a major issue in Europe's debt saga: In a system where unanimity is required, even small countries wield great power.

Because major eurozone policies need the approval of all 17 countries that use the currency, Slovakia's vote - the last - carried immense weight. For weeks it appeared certain it would reject boosting the bailout fund, unnerving financial markets and threatening the future of Europe's plans to fight the crisis.

Experts said EU officials could possibly find a way around a Slovakian rejection of the bill to boost the powers and size of the bailout fund, the European Financial Stability Facility, or ESFS - but that doing so would carry costs to European unity.

In the longer-term, the drama seems sure to add momentum to the push for nimbler rules to govern the 17-country eurozone, where government reaction to the unfolding crisis has seemed for many months to be behind the curve.

That push has been gathering momentum for some time.

In August, the leaders of France and Germany, President Nicolas Sarkozy and Chancellor Angela Merkel, proposed that the heads of the eurozone countries elect the president of a new "economic government" who would direct regular summits to respond to the continent's financial crisis.

And in September Jose Manuel Barroso. president of the European Commission - the European Union's executive arm - decried what he called "the constraint of unanimity".

"The pace of our joint endeavour cannot be dictated by the slowest," Mr Barroso told the European Parliament.

At issue now is an agreement reached by the eurozone leaders in July to enlarge the EFSF's capital guarantee from 440 billion to 780 billion euro. Slovakia would contribute about 1%, or 7.7 billion euro. In addition, if the changes are approved, the facility would have new powers and able to prop up government bond markets and help put new capital reserves against losses in banks.

Although 16 countries have given the thumbs-up, approval of the changes has found itself in potential jeopardy because of the opposition of a junior member of Slovakia's governing coalition, the Freedom and Solidarity Party. The party's chairman, Richard Sulik, calls the expanded bailout fund "a road to hell" and has vowed to block it.