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Eurozone bailout fund faces key Slovakian vote

Slovakian Prime Minister Iveta Radicova
Image caption Slovakian Prime Minister Iveta Radicova has so far been unable to get her coalition partners to agree a deal

Slovakia faces a key vote on measures to bolster the powers of the eurozone bailout fund, seen as vital in combating the bloc's debt crisis.

With one coalition party vowing to abstain, the goverment looks set to lose the vote, but may keep trying.

After Malta approved the plans late on Monday, Slovakia is now the last of the eurozone's 17 member states to vote.

Slovakia's prime minister says she will tie the vote to a confidence vote - putting her government at risk.

"I have to say that the coalition partners have failed to reach an agreement," Prime Minister Iveta Radicova said.

The country's future in Europe was at stake, she said.

"It's unacceptable for a prime minister to allow the isolation of Slovakia."

While three of the four parties in the government coalition back the expansion, a fourth, the liberal Freedom and Solidarity (SaS), is holding out.

The SaS has balked at Slovakia - one of the poorest countries in the eurozone - being asked to guarantee 7.7bn euros of the 440bn European Financial Stability Facility (EFSF).

It demanded a binding agreement that Slovakia would refuse to take part in the European Stabilisation Mechanism - which is meant to replace the EFSF in 2013 - and a veto over future bailout disbursements from the EFSF.

When the government failed to bow to its demands, it said it would abstain from the vote.

That means the vote is likely to be lost, as the socialist opposition has also said it will abstain.

However, parliament can call for a repeat vote. The opposition has indicated it would then back the measures - though it may make its own stringent demands, including new elections.

'Not enough'

To expand the powers of the EFSF bailout fund, all member states must agree on the measures proposed in July.

These include expanding the size of the fund to an effective lending capacity of 440bn euros ($600bn; £383bn).

They also include giving it the power to buy eurozone government debt and offer credit lines to member states and to banks.

The irony is that these plans, agreed in July, are now seen as inadequate, says the BBC's Matthew Price in Brussels.

Market analysts suggest the fund needs to be nearer 2 trillion euros to be effective.

Other plans agreed in July, to make private investors take a hit on any default by Greece on its debts, are also now seen as insufficient. Reports suggest leaders are contemplating a 50% cut rather than the 21% cut originally proposed.

Fresh measures

French President Nicolas Sarkozy and German Chancellor Angela Merkel pledged on Sunday to do what it takes to protect European banks from the debt crisis.

The leaders said they were close to a detailed package to ease the crisis and would give further details within weeks.

The pledge helped boost stock markets on Monday, with Wall Street's Dow Jones index rising 3%, albeit on low volumes.

The markets are now expecting more comprehensive measures designed to tackle the crisis once and for all to be announced at a G20 meeting in Cannes at the beginning of November.