It’s Bratislava or bust. The fate of the euro is at stake in a city that most Europeans would be hard pressed to find on a map — and you can bet your last euro that the architects of the single currency never thought it would come to this. In Slovakia, a member of the ruling coalition has protested that poor eurozone members should not have to pay to bail out richer ones, and is threatening to vote against ratifying a stronger European bail-out mechanism. However, that is the bargain Slovakia agreed when it joined the euro in 2009. And what a costly bargain it could turn out to be: ratification is likely to bring down the government.
Slovak dissenters are making an important point of principle. Bratislava’s guarantee commitment to the original European financial stability facility is €4.4bn. That is nearly 9 per cent of the country’s gross domestic product – the highest, proportionately, of any of the EFSF’s 17 members. Its contribution to a souped-up facility – with its financial firepower expanded from €440bn to €780bn – would be nearly 13 per cent of GDP. That is more per capita than is being asked of Spain and Italy, for instance. But boosting the EFSF is about taking one for the team. The Slovaks should bear the bigger picture in mind. At least Bratislava can afford to borrow to fund its participation – its debt to GDP ratio is only 45 per cent, the fourth lowest among facility members.
Principles aside, Slovaks will likely ratify an expanded EFSF in the next few days. Investors could reasonably argue that its ratification is priced in: the global stock market rally of the past few days is predicated in large part on the belief that a stronger EFSF will eventually help to resolve the eurozone debt crisis – which, other things being equal, it will. The wobbles in Bratislava on Tuesday halted that rally. That is a measure of what is at stake.
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