Slovak Parliament Approves Plan for EFSF Expansion

Slovakia's parliament ratified a plan to bolster the Eurozone's EFSF rescue fund on Thursday, after voting to hold an early election as demanded by the opposition.

A junior party in the country's ruling coalition torpedoed the cabinet on Tuesday in a confidence motion connected with ratification of the plan to give the European Financial Stability Facility (EFSF) more powers to fight the debt crisis.

The failed attempt had rattled financial markets. The opposition committed to provide votes for the EFSF in a repeated vote, once the early election plan was approved.

Slovakia was the only one of the 17 countries using the euro single currency that had not approved giving the rescue fund more powers, a measure European leaders say is urgently needed to save the currency zone from financial ruin.

The difficulty ratifying the EFSF expansion in Slovakia is a sign of the challenges European leaders face responding to the debt crisis across 17 countries that must all act unanimously.

With 5.4 million people, Slovakia accounts for less than 2 percent of the currency bloc's population and 1 percent of its output, but its parliament could effectively veto the measure.

The delay in enacting the July deal comes even as other leaders are wrangling over further steps to protect euro zone banks if Greece defaults on its debts.

The EU will hold a summit on October 23 to adopt more measures to counter the crisis.

ELECTION

Under a constitutional law approved on Thursday, a general election originally planned for 2014 will be moved to March 10 next year, meeting the leftist opposition Smer party's main demand for its support of the EFSF.

European Commission President Jose Manuel Barroso said earlier he was confident Slovakia would approve the plan, and that this would not be a problem for EU leaders when they meet on October 23.

I hope that this is going to find a solution, and I am told, the latest reports we have received from Slovakia, is that there is now a consensus or a majority in favor of a solution, and I welcome that, Barroso told reporters in Brussels.

So I don't think that this will be a problem for the European Council. I am anticipating a positive outcome.

Agreement on Wednesday between Smer and the three governing parties -- Prime Minister Iveta Radicova's SDKU, the Christian Democrats, and the centrist Most-Hid -- caused the euro and global stocks to rally, reversing a selloff that had gained speed on fears that the measure might not go through.

The fourth coalition member, Freedom and Solidarity (SaS), caused the cabinet to collapse by opposing Tuesday's confidence motion. Its leader, free-marketeer Richard Sulik, argued that as the euro zone's second poorest member, Slovakia should not have to bail out richer countries like Greece.

The package will boost the EFSF to 440 billion euros and give it the ability to buy sovereign bonds, extend emergency lending to countries and recapitalize banks.

Slovakia's portion in guarantees backing up the EFSF is 7.7 billion -- about 11 percent of its annual output. Sulik says that is too much considering Slovak living standards are just 74 percent of EU average, below Greece's 89 percent.

Radicova's cabinet will remain in office until a new administration is formed. Smer's leader Robert Fico said he would stay in opposition until the March election.

Coalition officials have not given details on how the government will continue to operate. It is possible that Radicova's team will stay on in a caretaker capacity.

Fico, whose Smer party is Slovakia's most popular by far with over 40 percent support, has long pledged support for the rescue fund but stayed out of Tuesday's ratification as a tactical move to topple the government.

President Ivan Gasparovic, responsible for appointing the next prime minister, has cut short a visit to Asia to deal with the government collapse and was due to return on Thursday. Radicova was due to meet Gasparovic on Friday. She canceled a trip to a summit of central European prime ministers in Prague.

Slovaks have been split over the EFSF, but the latest opinion polls show more people backing the plan to expand it than opposing it.

This coin has two sides -- when we are members of the euro zone, we need to take measures the way other countries adopt them, and not distance ourselves, said Michal Sklenar, 28, a clerk.

(Writing by Michael Winfrey and Jan Lopatka; editing by Andrew Roche)