Uncertainty over the fund’s approval in this former Eastern Bloc nation that adopted the euro only in 2009 is laying bare the political crisis within the economic crisis that is rocking Europe and threatening global markets.
Though rooted in the fiscal woes of nations such as near-bankrupt Greece, Europe’s economic problems have ballooned largely because of indecision and infighting among the nations in the euro zone — a currency union that critics say was simply not built for crisis management.
What would have happened, for instance, if Washington needed the approval of all 50 states before proceeding with its plan to rescue ailing U.S. financial institutions in the wake of the collapse of Lehman Brothers in September 2008? But the euro zone is a confederation of member states lacking a powerful executive and legislative branch. The situation illustrates, critics say, the built-in flaws of the currency union.
European leaders, for instance, did not count on one Richard Sulik, a dapper 43-year-old who is the speaker of parliament in this quaint capital nestled in the foothills of the Carpathian Mountains. Sulik’s Freedom and Solidarity Party calls the plan an unfair bailout of profligate Greeks and fat-cat German and French bankers that poor Slovaks can’t afford. It is vowing to block the rescue fund in a vote next week or make its passage incumbent on a rule that could give this nation of 5.4 million veto power over the use of bailout funds — a move that could spark a showdown with its bigger neighbors.
If the measure is approved here — as its supporters pledge will happen — it seems likely to pass in a deal that could result in the fall of the government, ushering in a period of uncertainty that economists warn could see Slovakia slide into its own budget crunch. The other holdout thus far, even tinier Malta, has delayed a vote on the fund until next week, citing concerns over the size of its contributions.
“Our goal here is to prevent the passage of this rescue fund,” Sulik said. “This country should not have to pay for Greek pensions or French banks.”
Speaking from his office, amply stocked with a humidor and wet bar, he added that if he were an investor in troubled European debt right now, “I, too, would feel bad about what we are doing.”
Lack of consensus
In fact, experts note, the euro zone — anchored by mighty Germany, itself torn politically over how much it should commit to the rescue of its neighbors — has had the financial wherewithal to solve the crisis quickly from the beginning. But torn by domestic politics, rife with bureaucracy and ruled by consensus, the region has failed to find the political cohesion and leadership required to do it, instead buying time with half-measures that have served only to further rattle investors.
“It was folly to create this system. It will be written about for centuries as a kind of historical monument to collective folly,” William Hague, Britain’s foreign minister and a longtime critic of the euro, told the Spectator magazine this week. “But it’s there and we have to deal with it.”
One of the roots of the opposition in Slovakia is the widely held belief that even the new, bolstered rescue fund is just another stopgap that will not be enough to contain the ballooning crisis.
Instead, the new $588 billion fund may yet need to be leveraged into a larger pool of cash by borrowing more than a $1 trillion from the reluctant European Central Bank. But on Thursday, ECB President Jean-Claude Trichet said turning to the euro’s central bank would not be “appropriate,” insisting that Europe’s leaders should tap their national coffers instead.
And with fresh signs that Europe’s banks, saddled with billions of euros in the debt of troubled countries in the region, may require massive cash infusions to stave off a broader financial crisis, calls are heightening for Europe’s leaders to go back to their taxpayers to gather new funds.
That is just what Sulik and others here say they are afraid of, warning that Europe’s leaders may yet ask nations such as Slovakia to pony up far more taxpayer cash just days or weeks from now to again bolster the fund. That likelihood, he said, has given him even more reason to have the buck — or the euro — stop with Slovakia.
His position has found eager ears here in one of the euro zone’s poorest nations — one that went through a painful economic restructuring to join the euro zone in 2009 that wealthier nations now in trouble, such as Italy and Greece, have not initiated.
Here, the number of welfare recipients was slashed, labor laws were changed and health care was overhauled to force Slovaks to pay for more of their medicine and treatments. Unlike in Greece — where average salaries soared after it adopted the euro — the average monthly wage of about $1,000 a month in Slovakia remains humble by European standards. But the changes have also helped fuel a dynamic, export-led economy that has seen Slovakia emerge from its communist past as the assembly line of Europe — selling cars, televisions and computers across the euro zone and beyond.
‘We have suffered’
Now, Slovakia is being asked to fork out more than $10 billion toward the new bailout fund — an amount equal to roughly 12 percent of its annual economic output.
“We have suffered, so why give it away to richer countries just because they manage their money poorly?” asked Jozef Sikula, an unemployed security guard. “We’ve done things right, so why make us pay?”
But pay, Europe says, Slovakia must. And supporters of the contribution call its ratification here essential to ensuring the region’s stability and to fulfilling Slovakia’s role as a member of the euro. The “yes” ranks include Prime Minister Iveta Radicova. But she cannot pass the measure without the backing of Sulik’s party, a key member of her ruling coalition.
Instead, she may be forced to bow to an offer by her political opposition to help ratify the fund, but only if she calls early elections, a move that observers here say means she is effectively sacrificing her job.
In an interview, Radicova’s finance minister, Ivan Miklos, refused to “speculate” about the vote next week but conceded that it would be hard fought.
“Everybody sees how the U.S. was able to take decisive action in a few days to handle its crisis, but we in Europe are taking months,” Miklos said. “The problem is that we work differently, by consensus. And right now, we don’t have a consensus of what to do.”