By Emma Charlton
BRUSSELS (MNI) – The decision by the Slovakian government not to
back a EU-wide loan package for debt-stricken Greece exposes the
difficult decisions facing Europe’s politicians as they are forced to
choose between electoral popularity and the tough financial decisions
deemed necessary to prevent the Eurozone from disintegrating.
One of the key campaign strands of Slovakia’s new centre-right
government, led to power in June by Iveta Radicova, was a rejection of
the E110 billion joint Eurozone-International Monetary Fund loan package
for debt-laden Greece.
The package was offered to Greece in May, after months of market
turmoil that followed an announcement by the government in Athens that
its budget deficit was more than four times the EU’s stipulated 3%
limit. That news had pushed up spreads on Greek sovereign debt to record
levels and left the country unable to refinance itself in the capital
markets.
With the crisis threatening to spread to other high-deficit EMU
countries, the bailout for Greece was seen as indispensable for the
future of the Eurozone as a whole.
While the impact of Slovakia’s decision on the Greece aid deal are
limited — the Slovak contribution was due to be E816 million, only
about 1% of the total package — the sentiment underlying it exposes a
political raw nerve being felt across Europe.
Europe’s political leaders so far are sticking together, most
recently with the kind of tough national decisions on fiscal austerity
that are considered necessary to keep the sovereign debt crisis from
erupting again. They agree, at least for now, that solidarity is key to
protecting the single currency and fostering growth over the medium and
long term.
EU diplomats had played down Radicova’s rhetoric on the Greece deal
during the election campaign, saying it was just an electoral strategy.
Once in power, however, the new government kept its promise, arguing
that as the Eurozone’s poorest country it shouldn’t have to help richer,
profligate countries, like Greece.
“The refusal to back the Greece deal was a key election issue, it
curried a lot of favour nationally,” an EU diplomat said. “What began as
an election issue has now turned in to more than that, it’s snowballed,”
he added.
European Commissioner for Economic and Monetary Affairs Olli Rehn
said Slovakia’s decision was a “breach” of a commitment by Slovakia’s
previous government.
“I can only regret this breach of solidarity within the euro area
and I expect the Eurogroup and the Ecofin Council (of finance ministers)
to return to the matter in their next meeting,” he said.
In a series of interviews given last week, including one to German
daily Die Welt ahead of a meeting with Chancellor Angela Merkel,
Slovakia’s Prime Minister Radicova defended her country’s decision,
perhaps realising just how popular the rhetoric has become at home.
It should be noted, however, that Slovakia did approve a E4.4
billion loan guarantee contribution to the E440 billion European
Financial Stability Facility, which is to be used as a last-resort
lender if any other Eurozone countries should fall in to trouble.
Merkel sought to gloss over the disagreement on Greece, telling
reporters at a news conference in Berlin that she was sure “both sides
would seek to mend their differences and seek dialogue.”
But the German Chancellor is no doubt acutely aware of how fine the
line is between national politics and Eurozone solidarity, as she faces
rising anti-EU sentiment in her own country, where popular opinion isn’t
so far from that in Slovakia.
Not long after the Greece package was agreed, Merkel’s Christian
democrat party lost control of the parliament’s upper house in a state
election.
And the political stakes are high in other EU countries too, as
politicians face up to the fact that billions of euros in bailouts for
other governments and, perhaps even more importantly, tough austerity
packages at home, are not the recipe for domestic political success.
In France, President Nicolas Sarkozy hit a new low this summer in
opinion polls, which indicate he could be defeated in the 2012 national
elections by a Socialist Party candidate.
Sarkozy’s popularity is without doubt being undermined by high
unemployment, cutbacks in social spending and concerns over the solvency
of the pension system. But his image has also been tarnished by fiscal
policies and “affairs” suggesting favoritism toward the rich, and most
recently by hardline security policies targeted at minorities.
Sarkozy’s government is facing strong opposition to proposed reform
of the pension system, with widespread strikes and protests planned for
September 7.
In Spain, a strict set of austerity measures barely made it through
a parliamentary vote, and Prime Minister Jose Luis Rodriguez Zapatero’s
minority government faces a tough test to hold onto power in an election
it must call before 2012.
In Ireland, where a deep recession is in progress, opposition
leaders regularly point to the 13% unemployment rate and the billions of
euros pumped into the banking system as failures of the current
government.
It’s a strategy that seems to be working: a recent Quantum Research
poll showed Prime Minister Brian Cowen’s popularity has fallen to 19%,
down five points since September 2009.
In the UK, a non-Eurozone member of the EU, the need to implement
tough austerity measures is likely to leave a question mark over the
long-term political prospects of the governing coalition headed by Prime
Minister David Cameron.
Bank of England Governor Mervyn King reportedly told a fellow
economist ahead before the UK elections earlier this year that the
winner would have to implement such draconian spending cuts that it
would be voted out of power for a generation.
Waning popularity, the implementation of difficult austerity
measures, and the likelihood of social disruption, suggest that while
Slovakia’s new government was the first European party to win success by
tapping into popular sentiment, it probably won’t be the last.
–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com
(Stephen Sandelius in Paris contributed to this report)
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