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Slovak euro fund vote hits snag, seen passing soon

Slovak Prime Minister Iveta Radicova attends a news conference in Bratislava
Slovak Prime Minister Iveta Radicova attends a news conference in Bratislava

By Michael Winfrey and Martin Santa

BRATISLAVA (Reuters) - A Slovak ruling party said it would abstain on Tuesday from a vote on expanding the euro zone's EFSF rescue fund, forcing the government to turn to opposition parties to push through a deal agreed by the currency bloc to contain the Greek debt crisis.

The prospect of further delays to the ratification of EFSF expansion, which has already been approved by the other 16 euro zone countries, hit markets already under pressure from signs that the crisis is spilling beyond Greece's borders.

Even as Slovakia wrangles over giving a green light to the July agreement, euro zone leaders are scrambling to give the 440 billion euro safety net greater clout to staunch contagion that has begun to seep into the rest of the currency area.

Slovak Prime Minister Iveta Radicova put her government on the line by tying a vote on the size and powers of the European Financial Stability Facility to a confidence motion on her cabinet in a session that was underway in the afternoon.

Even if Radicova loses the vote, as looked likely, she and two of her ruling coalition partners say they will be able to produce a majority for ratification of the EFSF deal by obtaining the support of the largest opposition party.

The leftist Smer party led by former Prime Minister Robert Fico has said it would be receptive -- in exchange for major concessions including a cabinet reshuffle or early elections.

The fourth ruling party, Freedom and Solidarity (SaS), said it would abstain from the ballot. It argues that, as one of the poorest members of the single currency club, Slovakia should not pay for the debts racked up by more affluent countries.

"We reject this pressure, and therefore will not take part in the vote," SaS Chairman Richard Sulik said.

Parliament can submit the ratification to repeated ballots once Radicova has struck a deal with the Smer party.

"We are ready to talk to political parties seeking approval of the EFSF. But let's wait, this government is facing a test now," Fico told reporters.

VOTING BREAKDOWN

By withholding 21 of the ruling coalition's 77 votes, SaS would prevent the government from mustering a majority in the 150-seat chamber. With Smer's 62 seats, however, Radicova should easily see the measure through.

Radicova said last week she was personally committed to ratify the agreement by October 14 ahead of a meeting of euro zone leaders originally planned for the weekend. That meeting has now been pushed back to October 23.

The timing for a second ratification vote -- if the new vote fails as expected -- is not clear, but a senior Smer leader said there would be no delay.

"We are confident that the EFSF expansion will be approved as soon as possible," Deputy Chairman Peter Kazimir said.

Trepidation over the Slovak vote showed in markets on Tuesday. European shares fell after a four-day rally while the euro dipped but held in positive territory for the week after hopes for a solution to the debt crisis sparked a squeeze of short positions in the currency.

A poll showed on Monday almost half of Slovaks support expanding the euro zone safety net, versus 36 percent against, and many cringe at the idea that Bratislava could help trigger a new global economic downturn like the one that sent the export-dependent country into recession two years ago.

But with Slovak salaries averaging just 780 euros a month -- just a touch above Greece's 750 euro minimum wage -- many people in the country of 5.4 million bridle at the thought of footing the bill for overspending in Athens, Dublin or Rome.

While Slovakia has been dragging its feet on the EFSF approval, euro zone leaders have been discussing further action to prevent a spread of the euro zone debt crisis.

European Central Bank President Jean Claude Trichet said on Tuesday the debt crisis had become systemic and a failure to take quick action would threaten global economic stability.

Analysts said that while the Slovak brinkmanship would not torpedo the eventual expansion of the EFSF, it would weigh on global sentiment toward the euro zone as the crisis deepened.

"The SaS should consider that it could trigger not just a collapse of the government, which is a secondary issue right now, but cause turbulence in Europe and on the markets," said Grigory Meseznikov, head of the Institute for Public Affairs.

The EFSF pact would increase its coffers to 440 billion euros, allow it to buy bonds from the market to support countries under attack by markets, bail out members who need funding and help them prop up failing banks.

Once Slovakia's parliament ratifies it, lawmakers must then approve domestic legislation to implement the deal -- an issue analysts say should not pose a problem once Radicova secures the necessary support.

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