Petr David Josek, AP Photo
BRUSSELS — Slovakia's dramatic rejection of Europe's expanded bailout fund has put in painful relief the trouble the 17-country eurozone has in making decisions, with small countries wielding power over matters critical to the whole continent and the wider world.
Sixteen countries have already approved increasing the size and powers of the bailout fund, but under the eurozone's current rules, when one country says no, the answer is no.
In the case of Slovakia, a country of 5.5 million people has been blocking the plans of the entire eurozone and its 332 million citizens.
Because of domestic political infighting, the Slovak parliament rejected the proposal to boost the bailout fund, triggering the government's collapse on Tuesday. The main parties reached a deal on Wednesday to approve the fund by Friday, but the drama and brinkmanship have gotten European officials wondering if the eurozone can keep functioning in the current form.
The European Union does have a way of influencing a single country's political decisions. Great pressure can be brought to bear on recalcitrant leaders, particularly in situations — such as Slovakia's — in which a vast majority are in agreement.
But many observers think the eurozone's decision-making process is far too slow and cumbersome to react to fast-moving market crises and has consistently left its leaders behind the curve as they have tried to extinguish the economic brush fires. A consensus is developing among experts that the euro currency cannot ultimately survive unless decision-making becomes more centralized and nimble.
Jose Manuel Barroso, the president of the European Commission, the EU's executive branch, has begun campaigning for the requirement of unanimity to be dropped.
"The speed of the European Union should not be the speed of the slowest member," Barroso told European Parliament on Wednesday.
The events in Slovakia were "a good illustration of the limits that we're facing," his spokeswoman, Pia Ahrenkilde Hansen, added. "We do need to be able to respond more efficiently to these situations in the future."
At issue, as Slovakia wrestles with its internal politics, is an agreement reached by the eurozone leaders July 21 to enlarge the lending capacity of the European Financial Stability Facility, or EFSF, to €440 billion ($600 billion) from €250 billion. Slovakia would offer guarantees worth €7.7 billion.
In addition, if the changes are approved, the facility would have new powers and be able to prop up government bond markets and help put new capital reserves against losses in banks.
The arguments made in Slovakia by those against contributing to the new bailout fund is that their country is already the second-poorest member of the eurozone and should not be putting up money for richer governments that have overspent.
It has not just been one small nation holding up the approval for the entire eurozone, but factions within that small country.
The party of Slovakian Prime Minister Iveta Radicova supported expanding the fund. But the leader of a junior member of her coalition considered the fund "a road to hell" and promised to block it — meaning the coalition didn't have enough votes on its own for approval.
The main opposition party, led by former Prime Minister Robert Fico, also supported the fund, but wanted Radicova's government to fall — which it did when she tied a confidence motion to the bailout vote.
All this was too much for Guy Verhofstadt, head of the liberals in the European Parliament.
"If member states have not already learned the lessons and costs of slow and inefficient decision-making, they will now," Verhofstadt said Wednesday. "Measures to halt a global economic downturn are effectively being blocked by internal Slovak political maneuvering."
The way of governing the eurozone must change, he said, proposing that euro bailout fund should become more like a European Monetary Fund, operating independently of national governments rather than relying on the current required unanimity.
"This is the fundamental weakness in eurozone governance, where crucial and timely decisions are at the mercy of 17 national parliaments, and narrow political majorities can be exploited for equally narrow political interests," he said.
Investors and ratings agencies, meanwhile, seem resigned to the fact that the eurozone's decision-making system is unlikely to change soon.
"Political uncertainties, such as this one, will contribute to the euro area crisis persisting at varying degrees of intensity for an extended period rather than just a few months," ratings agency Fitch said Wednesday in a report to clients about the Slovak vote.
It predicted the eurozone would survive in the end, but only with — in characteristic fashion — a compromise deal that restored confidence but fell short of full fiscal union.
Don Melvin can be reached at http://twitter.com/Don_Melvin.
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