- Associated Press - Tuesday, October 11, 2011

BRATISLAVA, Slovakia (AP) — Europe braced itself for the possibility that Slovakia’s lawmakers could reject a measure to expand the powers of a euro bailout fund designed to shore up the defenses against a debt crisis that is threatening the global economy.

Slovakian Prime Minister Iveta Radicova urged lawmakers to back the bill, arguing that the country was losing its credibility — the country’s 16 partners in the eurozone already have backed the package of measures designed to boost Europe’s firefighting capabilities.

“It is the entire eurozone system which is under threat at the moment, not just a few small countries anymore,” Ms. Radicova said in the debate in Parliament. “Our euro is under threat. The changing situation needs a quick and immediate reaction.”

Earlier, Ms. Radicova indicated that a coalition partner had yet to be persuaded, meaning that the government will not have enough votes to get it through if the opposition fails to support her.

A “no” vote would further complicate the eurozone’s efforts to deal with a crisis that’s already seen three countries get bailouts and raised fears of a Greek default and massive losses for banks.

In a desperate attempt to get her recalcitrant coalition partner to back her, Ms. Radicova said the vote will be linked to a “confidence vote” in the government — a move described as blackmail by Richard Sulik, chairman of the Freedom and Solidarity party and the major opponent of the fund.

In the debate, Mr. Sulik gave few indications he was about to change his party’s vote, arguing that the expanded fund made “no sense” because it would not have enough money to help big EU economies such as Italy and Spain and that it would be “an honest solution to let Greece bankrupt.”

Moreover, he said, his party was against the fund being used to save banks in other countries. As well as having more firepower at its disposal — 440 billion euros ($599.59 billion) — the fund will be able to lend quickly to banks and governments and buy up the bonds of troubled countries in the markets.

Mr. Sulik claimed that Slovakia has the lowest salaries in the eurozone at 762 euros ($1,039) and that the country was paying more than its fair share. “Slovakia will have to pay the biggest prize for the fund expansion,” he said.

Mr. Sulik’s comments indicate that the government could well fall if the vote is not carried, though it does not necessarily mean early elections under the terms of the Slovak Constitution. Ms. Radicova has suggested a second vote could take place if the first one fails to approve it, though it’s not clear when that could happen.

Finance Minister Ivan Miklos, who is a member of Ms. Radicova’s party, said that the measures were not ideal but that there was no alternative for the country.

“The situation is really serious,” he said. “The image of Slovakia has been damaged, and we should do all we can to stop it.”

On Monday, the four-party coalition, which met for three hours, was unable to agree on a compromise deal.

A “no” by Slovakia would be a bad signal for already nervous financial markets, though it would not necessarily kill off the plan to beef up the fund, as the prevailing view is that Ms. Radicova would win a second vote if the main opposition gets its demand for early elections.

“Should the vote fail, therefore, it is highly likely to be followed by a second, successful vote and the rapid dissolution of Parliament,” said Adam Cole, an analyst at RBC Capital Markets. “This could happen within a matter of days and possibly as early as today.”

Slovakia, a nation of 5.5 million people, would contribute about 1 percent, or 7.7 billion euros ($10.5 billion). With the help of EU funds and foreign investments, it has benefited significantly from its membership in the eurozone and the EU and become a leading European car exporter.

Ahead of the vote, European markets were giving up some of their recent gains, though they remained sharply higher on the week. The euro meanwhile fell 0.4 percent to $1.3578.

Without the votes from Mr. Sulik’s party, the coalition government would have to rely on the opposition, but it is unlikely to provide any help. The major opposition party, the Smer-Social Democracy of former Prime Minister Robert Fico, supports the fund expansion in principle but was ready to vote for it in exchange for nothing less than early elections.

Early elections would have to be approved by a three-fifths majority in the 150-seat Parliament.

Another option would be for President Ivan Gasparovic to appoint a new prime minister, though he’s currently on a foreign trip in Asia.

Ms. Radicova, the first female Slovak prime minister, and her government were sworn in after general elections in June 2010.

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