Slovakia’s parliament rejected the nation’s participation in a loan for Greece, ending the European Union’s unity in handling the sovereign-debt crisis.
The 69-1 vote, with 14 abstentions, reversed a decision by the previous Cabinet to lend Greece 816 million euros ($1.1 billion). Prime Minister Iveta Radicova’s month-old government opposed the aid, saying poor countries shouldn’t pay for the profligacy of richer peers.
The funds were to be part of a package designed to help Greece avoid default. Euro-are governments in May agreed to provide 80 billion euros of loans, with an additional 30 billion euros from the International Monetary Fund, in return for a Greek pledge to cut its budget deficit. Slovakia’s decision won’t prevent Greece from drawing on the loan, the EU said.
“The Slovak share is small, so it shouldn’t have much impact on the big picture,” said Timothy Ash, head of emerging markets research at Royal Bank of Scotland Plc in London. “On the other hand, the rejection is clearly a disappointment for the European Commission as Slovaks are thinking outside the box.”
Olli Rehn, the EU’s economic affairs commissioner, called Slovakia’s decision a “breach of the commitment” the previous government made as part of the so-called eurogroup of countries.
“The eurogroup’s decision was a crucial act at a critical moment to safeguard financial stability of the euro area as a whole, including Slovakia,” Rehn said today in a statement. “I can only regret this breach of solidarity within the euro area, and I expect the Eurogroup and the Ecofin Council to return to the matter in their next meeting.”
First Instalment
Greece has already received the first instalment of the loan. Disbursement of the remainder depends on the government’s progress in stabilizing public finances and narrowing the deficit.
Prime Minister George Papandreou has raised taxes, cut wages and carried out austerity measures that helped shrink the shortfall by 45 percent in the first half of the year. EU, IMF and European Central Bank officials said Aug. 5, after a two- week review, that performance criteria have been met.
Slovak Finance Minister Ivan Miklos has said EU fiscal rules should be changed to allow for the default of euro-member nations. Slovakia, the euro region’s poorest member by per- capita gross domestic product, was asked to pay too large a share of the Greek loan package, he said July 30.
“Many people in Germany and rich EU countries would have a lot of understanding for the Slovak position,” Ash said. “It shouldn’t be inevitable that every country gets a bailout.”
Earlier, lawmakers approved Slovakia’s participation in the European Financial Stabilization Facility, an entity that would sell debt secured by 440 billion euros in national guarantees and use the proceeds to provide loans to distressed euro-region members. Slovakia’s share in potential guarantees amounts to 4.4 billion euros.
To contact the reporter on this story: Radoslav Tomek in Bratislava at rtomek@bloomberg.net.
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