LONDON — Tiny Slovakia defied its mightier neighbors Tuesday and rejected an expanded rescue fund to save Europe’s ailing debtor nations and troubled banks, effectively holding hostage the region’s plan to fend off a broader economic crisis.
The “no” vote after a marathon session of parliament in the sleepy Slovak capital of Bratislava threw up another stumbling block to Europe’s efforts to ease a debt crisis that is threatening the global financial system. After months of wrangling over what to do about nations such as near-bankrupt Greece, European leaders agreed to the expanded plan for a $588 billion rescue fund as far back as July. But its creation has been contingent on parliamentary approval in the 17 nations that share the euro, with all but Slovakia signing off.
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The Slovaks were scrambling late Tuesday to rearrange a new vote after the government there became the first to fall in Europe over opposition to bailouts. But the rejection nevertheless seemed destined to rattle already jittery investors and further sap the confidence of world leaders in Europeans’ ability to solve their own problems.
The dizzying power of Slovakia to scupper a major rescue effort largely crafted by far larger Germany and France has illustrated the quixotic nature of European governance and the region’s bungled bailout attempts. Delays in resolving the crisis are heightening fears that bad debt in Europe could infect global banks in much the same way that U.S. subprime mortgages did after the collapse of Lehman Brothers in September 2008.
On Tuesday, the most populist of the four parties in Slovak Prime Minister Iveta Radicova’s ruling coalition made good on its threat to block the fund. The party said it would not let poor, debt-averse Slovaks, who have one of the lowest average wages in Europe, help foot the bill to save profligate Greeks and the big banks that own their debt.
“I’d rather feel ashamed in Brussels than in front of my children,” Richard Sulik, head of the rebel Freedom and Solidarity Party, proudly declared in the Slovak parliament, referring to the European Union’s administrative capital in Belgium. Sulik’s staunchly free-market party has argued that approving the bailouts would only mean more debt for countries that have already borrowed too much.
Disunity worries investors
Radicova, insisting that Slovakia had to do its part to support its neighbors, staked her job on the outcome of Tuesday’s vote, with the result bringing down her government. For the Europeans, hope now centers on a pledge by the opposition to throw its support behind the fund’s approval in exchange for early elections. Slovak politicians engaged in a bout of fierce horse-trading, and a fresh vote appeared likely in the coming days.
“It is a sad reminder of how the euro zone depends on the decisions of individual nations with competing interests,” said Paola Subacchi, head of international economics at Chatham House, a London-based think tank. “It’s a reminder that Europe is not a federal state, and that one populist party can derail its efforts.”