Slovenia deals another blow to euro bailouts
Countries like Slovenia have their own problems. As the euro zone economy worsens, their willingness to support bailouts decreases. And the European institutional principle of unanimity will almost certainly mean that bailout fatigue leads to default.
Slovenia’s government lost a confidence vote, plunging the first former communist euro-region member into turmoil that may delay the approval of the European Union’s rescue fund amid a sovereign-debt crisis.
Lawmakers in Ljubljana voted 51-36 today to topple Prime Minister Borut Pahor’s administration, according to parliament’s press service. General elections are likely to be held as early as December, which may force a postponement of a vote to back the legislation enhancing the EU rescue fund, known as the European Financial Stability Facility.
As with the Baltics, which have undergone harsh austerity programs to qualify for admission into the euro club, Slovenia has no sympathy for the plight of the ‘PIIGS’. Bloomberg also mentions Slovakia as another nation which is in the same predicament regarding the bailouts:
The head of Freedom and Solidarity, one of the four ruling Slovak parties, says party lawmakers will reject the overhaul of the bailout fund. Radicova needs the party’s votes to push through the overhaul of the EFSF, the temporary bailout fund designed by EU leaders. A failure to approve the package in Slovakia, the euro-area’s second-poorest member, may delay euro- area approval of the plan to prevent the sovereign debt crisis from engulfing countries such as Spain and Italy.
If you recall, Slovakia balked at the Greek aid package last year, initially rejecting it. A core of countries with large ‘anti-bailout’ factions is emerging now in the euro zone. Here’s how I broke down the Eurozone last month:
Right now there are four to five separate groups in Euroland’s sovereign debt crisis. First, there is Greece, assumed by everyone to be insolvent and the only country to default via its bailout package which reduces creditor repayments by 21%. Then there are Ireland and Portugal. These two countries have also received bailouts but have not defaulted. Next are Spain and Italy, what I have called “the new Ireland and Portugal”. These two countries are seeing their spread to German bunds widen considerably and yields explode above 6%. Fourth is a new and worrying development with Belgium and France becoming untethered from the core. Spreads are widening for these two countries in a way which is dangerous. Finally, there is the core of Germany, Finland, Austria, the Netherlands, Luxembourg, Malta, Slovakia and Slovenia. Estonia and Cyprus are special cases: one is new to the zone and the other has unique problems that I won’t discuss here. That’s 15 countries in six distinct categories (plus Estonia and Cyprus).
The anti-bailout core includes Germany, the Netherlands, Austria, Slovenia, Slovakia, Estonia and Finland. That is seven. The countries under pressure are five: Portugal, Ireland, Italy, Greece and Spain. Countries in-between are France and Belgium. That’s not the right juxtaposition for conducting large-scale bailouts. And Tiny Luxembourg, Cyprus, Malta aren’t going to help you, are they? Cyprus needs its own bailout anyway.
When it was erroneously reported that Austria was pulling a Slovenia last week, I noted the Austrian central bank head’s astute observation about this crisis’ Achilles’ Heel:
A particular problem is the principle of unanimity for the EFSF program; this makes the European institutions very cumbersome.
The bottom line is that countries like Slovenia have their own problems. As the euro zone economy worsens, their willingness to support bailouts decreases. And the European institutional principle of unanimity will almost certainly mean that bailout fatigue leads to default.