March 29, 2024

Slovakia May Hold Key to Euro Debt Bailout

The commercial has touched a nerve here in the second-poorest country in the euro currency zone, where the average worker earns just over $1,000 a month. The prospect of guaranteeing the debt of richer but more spendthrift countries like Greece, Portugal and even Italy has led to public outrage. So much so that tiny Slovakia now threatens to derail a collective European bailout fund to shore up the euro, which requires the approval of all 17 countries that use the currency.

Once among the most enthusiastic new members of the European Union, and an early adopter of the euro in Eastern Europe, Slovakia is proud of its strong growth and eager to leave behind its reputation as the “other half” of Czechoslovakia. But it has also become a stark example of the love-hate relationship that many residents of the Continent have begun to feel toward a united Europe.

Adopting the euro required hard sacrifices here that stand in sharp contrast to reports of overspending and mismanagement in Greece. The worries about the union’s future are all too real in smaller, poorer countries like Slovakia, which has about 5.5 million people, and is being asked to contribute $10 billion in debt guarantees to a $590 billion euro zone stability fund.

Not far from the new malls and hotels along the River Danube is Trhovisko Mileticova, a market dating from Communist times, where pensioners search for bargains among the barrels of pickled vegetables and cheap synthetic blouses from Asia. “It’s tough to get by with euros,” said Zuzana Kerakova, 64, who sells grapes at the market to supplement the combined 600 euros — about $804 — that she and her husband receive from a government pension every month.

Like many here on a recent morning, Ms. Kerakova said there always seemed to be enough money to help banks and foreign states but never people like her. On the other hand, she said: “The European Union has been good to us. We live more freely, move more freely.” Asked whether to side with Europe or refuse to help with the bailout fund, she said quietly, “Neviem,” Slovak for “I don’t know.”

“Neviem,” she repeated, shaking her head. “Neviem.”

The future of the euro could well be decided next week in the Slovak Parliament, which meets in a modern building that is too small to hold offices for all its members and their staff because it was originally designed to hold only occasional sessions of Czechoslovakia’s Federal Assembly, which usually met in Prague. The Parliament building overlooks not only the Danube but also the former frontier of the Iron Curtain, which cut off Bratislava from Vienna, less than an hour’s drive upriver and the cold war gateway to the free world.

The expansion of the bailout fund is in danger because the free-market Freedom and Solidarity Party, just one member of the four-party governing coalition, has held out against it. “I am not the savior of the world,” Richard Sulik, who is both the party’s leader and the speaker of Parliament, said in a recent interview here. “I was elected to defend the interests of Slovak voters.”

The opposition Smer-Social Democracy party could bridge the gap, but its leader, the leftist former Premier Robert Fico, hopes to bring down the government and win new elections, paving the way for his return to power, and is holding out for the coalition to crack.

The situation in Slovakia illustrates how ambitious young politicians, outspoken populists and struggling small parties can hinder collective action — or even derail it. Even if a compromise is found here, as it was in Finland, by the time agreement is reached among all 17 countries, investors will have long since moved on to a new batch of fears.

The vote over the expansion of the bailout fund, the European Financial Stability Facility, and its powers, is only one step. “The E.F.S.F. is not the end of the story. We will need to have other solutions,” said Slovakia’s finance minister, Ivan Miklos. “This is the dilemma. Everyone agrees that we need more flexibility.”

Slovakia’s relationship with the European Union runs far deeper than a single debt crisis or bailout. In the 18 years since independence, few countries have experienced such unusual twists of fate and fortune. From the “black hole in the heart of Europe,” as Madeleine K. Albright described the backward, isolated state in 1997, the country transformed itself into a neoliberal champion of the flat tax.

With automobile factories springing up across the country, it earned the nickname the Detroit of Europe. It is also called the Tatra Tiger, a name derived from a local mountain range, because of its rapid growth, including the 10.5 percent economic growth rate it reported in 2007, just a decade after Ms. Albright’s dire pronouncement.

But perhaps Slovakia’s greatest sense of accomplishment came from beating its former partners, the Czechs; its former rulers, the Hungarians; and its larger neighbor, Poland, into joining the euro currency zone. Many Slovaks are reluctant to be the stumbling block for the euro’s rescue after all the European Union has done for them.

“Thanks to joining the European Union and the prospect of joining the euro zone, investors were more likely to show interest here,” said Mayor Vladimir Butko of Trnava, a city about 35 miles east of the capital where a car factory produces Citroens and Peugeots.

The European Union helped to pay for improvements to the rail link to Bratislava, Mr. Butko said, and for a highway bypass. But he ranked the psychological benefits of European Union membership even higher than the economic ones. “When you can now sit in your car and go to Munich, and the same money in your pocket here can pay for a beer there, and you don’t have to stop at the borders,” said Mr. Butko, 56, “this is a very strong experience for people over 45.”

It is an experience that makes far less of an impression on the younger generation. Sebastian Petic, 18, a law student in Trnava who was spending a sunny afternoon on a bench in the town square with his Lenovo laptop, repeated a popular joke. “For 500 euro, you can adopt a Greek. He will sleep late, drink coffee, have lunch and take a siesta,” Mr. Petic said, “so that you can work.”

He opposed increasing the bailout fund, saying that debt would only snowball. “I was quite positive about the advent of the euro,” Mr. Petic said. “Now, I’m not so sure.”

Miroslava Germanova contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=e19e91044e5f542128ddf18b6d927380

Geithner Tells Europeans to Work Together on Debt Crisis

The Continent’s financial woes grabbed the attention of the policy-setting committees of the 187-nation International Monetary Fund and the World Bank during the lending institutions’ annual meetings.

Treasury Secretary Timothy F. Geithner told the I.M.F. panel that the debt crisis posed the most serious threat to the global economy and that failure to take bold action raised the risk of domino-style defaults by heavily indebted European countries.

He said the European Central Bank should try to ensure that governments pursuing sound reforms could get loans at affordable rates and that European banks have access to the capital they need to operate. The European Central Bank is the central bank for the 17 nations that use the euro as a common currency.

Global financial markets plunged last week on fears of a possible default within weeks by Greece and on worries that a default would cause runs on major European banks with heavy exposure to Athens’s debt.

“The threat of cascading default, bank runs and catastrophic risk must be taken off the table. Otherwise, it will undermine all other efforts, both within Europe and globally,” Mr. Geithner said. “Decisions as to how to conclusively address the region’s problems cannot wait until the crisis gets even more severe.”

Mr. Geithner was one of a number of finance leaders demanding forceful action.

Mark Carney, head of Canada’s central bank, called for “overwhelming” the problem with a big increase in Europe’s rescue fund for indebted countries.

In an interview with CBC radio, Mr. Carney suggested that a European financial stability fund should be increased to 1 trillion euros from the current 440 billion euros. At current exchange rates, that would be the equivalent of expanding a $590 billion fund to $1.35 trillion. “You need a big pot of money,” he said.

For Christine Lagarde, the I.M.F. chief, the debt crisis was a tough first test. Ms. Lagarde has warned that without strong and collective action, the world’s major economies risk slipping back into recession.

To avoid that, officials of the Group of 20 pledged on Thursday to “take all necessary actions to preserve the stability of banking systems and financial markets.”

Article source: http://www.nytimes.com/2011/09/25/business/geithner-tells-europe-it-must-work-together-on-debt-crisis.html?partner=rss&emc=rss