Slovaks vote no to bailout

THE EUROZONE’S grand plan to boost the firepower of its bailout fund was dealt a major blow last night as the Slovakian parliament voted “no”.

Legislators now face a scramble to form a new coalition and pass the bill, which could happen tonight at the earliest. Observers expect it to be ratified by the end of the week.

The Slovakian government fell after attaching the bailout vote to a no-confidence motion. Just 55 out of 150 lawmakers voted for the bill, with junior coalition partner, the Freedom and Solidarity party (SaS), abstaining and denying Prime Minister Iveta Radicova the majority she needed to pass the measures.

However, the centre-left opposition, the Smer-Social Democracy party, has indicated that it will vote for the changes to the bailout fund but is only likely to do so in return for a “coalition reshuffle” and a role in government, says Katya Kocourek of the Economist Intelligence Unit.

Slovakia, one of the Eurozone’s poorest countries with an average wage far below that of Greece, is being asked to increase its guarantees for the European Financial Stability Facility (EFSF) from €4.4bn to around €7.7bn. The EFSF will in turn put tens of billions towards Greece’s second €110bn bailout.

Slovakia’s defiance makes it the first country to vote down changes to the EFSF, which would boost the bailout fund’s maximum guarantees to €780bn, with a lending capacity of €440bn. It would also be allowed to bail out banks and buy sovereign bonds.

All other Eurozone countries have ratified the changes, which Richard Sulik, leader of the rebellious SaS party, called a “swindle”, saying the fund is “the greatest threat to the euro”.

However, despite the political debacle, Greece’s international creditors cleared the way for the release of the next €8bn instalment of its first bailout yesterday, without which Athens would go bankrupt within weeks.

Auditors representing the troika – the ECB, European Commission (EC) and IMF – said that Greece will miss its deficit targets for this year, but that the aid would be dispensed anyway.

The audit concluded that Greece will meet its 2012 target, yet also suggested that “additional measures” would be needed to meet targets in the two years after that.

Markets remain sceptical that Greece will meet any of its targets and are pricing in a default in some form.

Meanwhile, negotiations over a mass-bailout programme for Europe’s banks are ongoing, with EC president José Manuel Barroso slated to give an update today. Spain’s entire banking sector was downgraded by Standard & Poor’s last night, adding to the pressure on EU policymakers to come up with a rescue plan.

S&P slashed the ratings of 15 Spanish banks on the basis of “dimming growth prospects” in the economy and “a depressed real estate market”. The country’s biggest lenders, Santander and BBVA were included in the downgrade.


Trichet: crisis is systemic
“The crisis is systemic and must be tackled decisively," Jean-Claude Trichet told a European Parliament committee in his final appearance before retiring at the end of the month. “The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion. It threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond.”

Banesto misses targets
Spanish bank Banesto saw nine-month profit fall a third and miss forecasts yesterday after it booked higher provisions, boding ill for other banks in the troubled Eurozone state. Banesto, which is majority-owned by Santander, was also hit by Santander’s downgrade at the hands of Standard & Poor’s. Santander and BBVA were cut to AA- from AA, as well as being downgraded by Fitch.

Bank of Ireland downgrade
A downgrade also hit Bank of Ireland UK. Credit agency Moody's cut the deposit rating on Bank of Ireland’s UK operations on falling expectations that the British government would provide support if it encountered trouble. Moody's cut to Ba1/Not-Prime with a negative outlook from Baa3/Prime-3. However, Moody's added one notch of support for the Bank of Ireland UK's Irish parent.

Bank deposits at ECB grow
Overnight deposits at the 17-country bloc's central bank shot up again, it was revealed yesterday. Deposits at the European Central Bank (ECB) climbed to €269bn from Monday to Tuesday, the highest since June 2010, indicating eroding trust between banks. Overnight deposits the previous night had been reported in excess of €255bn, itself a 15-month high, as bank concerns grow.