Slovakia: The Eurozone's Wild Card

Slovakia could very well be the wild card for tomorrow.  Thumbnail sketch–4-party governing coalition split on it.  Slovakia would be on the hook for 7.7 bln euros 1 per cent funding.  Sounds like peanuts maybe…but Slovakia’s GDP is only around  65 bln euros.  The cabinet met for three hours today and failed to reach an agreement.  The vote is scheduled for tomorrow.

One key seems to be the SaS Party.  It has 22 seats and without these the government would not have sufficient votes. The coalition together has 79 votes in the 150-member chamber. The government may try to have a vote of confidence over it, meaning not to vote for it means the government collapses.  SaS Party is willing to vote for the EFSF if it could get the other coalition parties to agree to vote against the ESM–the permanent mechanism that is to replace the EFSF.  The other coalition parties have refused. 

Smer-Social Democracy is the largest opposition party (not in government) with 62 seats and it would vote for it but is demanding a reshuffling of the government. It seems unlikely to vote for it tomorrow especially if the government is divided.  It could lead the next government if the current centre-right government falls. The vote looks to begin around 11:00 GMT, prior to the open of US markets.   

There might even be a Catch-22 of sorts.  The PM wants to pass it and to pass it may cost the PM her job. A rejection of it, even if fixable at a later date, could undermine the already fragile sentiment and see the euro retrace part of today’s gains, which seem to have been exaggerated in thin dealings and large market positions. 

Given the out-sized moves on Monday, Slovakia’s vote could usher in turn-around Tuesday.

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