Monday, October 10, 2011

Will a libertarian party in Slovakia break the Euro?

Remember that Greek "bailout" that was announced back on July 21st?  It increases the size of the bailout fund, the European Financial Stability Facility (EFSF), from $440 billion Euros to $780 billion Euros, but before that can happen, every parliament in the Eurozone needs to approve it.  So far every one of them has except for Malta and Slovakia and tomorrow the Slovak parliament votes.  The approval of the facility expansion is in jeopardy however because of the opposition of the Freedom & Solidarity party, a relatively libertarian party (it is fiscally conservative, led by the father of Slovakia's flat tax, but also supports same sex marriage and the liberalization of drug laws) that is within the ruling coalition and controls 22 out of the 150 seats in parliament.  Without the support of Freedom & Solidarity, the only way the bailout would pass would be with the support of the social democratic party, which controls a whopping 62 seats out of 150 (it is the largest party in parliament and was only kept from power because the four center-right parties combined to form a coalition).  And they have said that they would be willing to support the measure only if they were promised that new elections were called, which is a pretty high price for the ruling coalition as it could bring the socialists back to power.  Now I am not so steeped in Slovak politics to know if the Freedom & Solidarity folks will not sell out or if the ruling coalition is more afraid of German anger than they are of losing power, but I find the whole thing to be very fascinating.  It has really brought to the fore the insanity of this whole bailout proposal, how does it make sense for a state like Slovakia to bailout Greece, which has a GDP per capita which is 30% higher?  Anyway, check out these arguments against the EFSF expansion by Richard Sulik, head of Freedom & Solidarity in an interview in Der Spiegel:

SPIEGEL ONLINE: Slovakia has yet to approve the expansion of the euro backstop fund, the European Financial Stability Facility (EFSF), because your Freedom and Solidarity (SaS) party is blocking the reform. If a majority of Slovak parliamentarians don't support the EFSF expansion, it could ultimately mean the end of the common currency.

Sulik: The opposite is actually the case. The greatest threat to the euro is the bailout fund itself.


Sulik: It's an attempt to use fresh debt to solve the debt crisis. That will never work. But, for me, the main issue is protecting the money of Slovak taxpayers. We're supposed to contribute the largest share of the bailout fund measured in terms of economic strength. That's unacceptable.


SPIEGEL ONLINE: Does one of your reasons for not wanting to help Greece have to do with the fact that Slovakia itself is one of the poorest countries in the EU?

Sulík: A few years back, we survived an economic crisis. With great effort and tough reforms, we put it behind us. Today, Slovakia has the lowest average salaries in the euro zone. How am I supposed to explain to people that they are going to have to pay a higher value-added tax (VAT) so that Greeks can get pensions three times as high as the ones in Slovakia?

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