Slovakia eurozone bailout vote on knife-edge and Greece summit delayed

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Financial markets have stumbled today as
Slovakia holds a knife-edge vote on whether to increase the eurozone
bailout fund and the European Union postpones a key summit on Greece.

The FTSE 100 has slid 41.9 points to 5,357.1, and it is a similar
picture on the continent where the German DAX is down 39 points at 5,808
and the French CAC 40 is 28 points lower at 3,133.

Slovakia is the last of the 17 countries in the eurozone bloc to hold a
vote on boosting the size and powers of the European Financial Stability
Facility (EFSF) after Malta approved it yesterday.

But politicians in Bratislava are reportedly bitterly divided over the proposal, with one of the four parties in the coalition government threatening to block it this afternoon. A no-confidence motion against the government might go forward at the same time as the crunch vote.

‘The ratification of the EFSF by Malta yesterday evening doesn’t hide the fact that vast differences remain between political leaders in Europe, not least in Slovakia where there is widespread opposition to the latest EFSF changes,’ said Michael Hewson of CMC Markets.

‘The likelihood is it could well be passed, though the price is likely to be the resignation of the Prime Minister and a general election.’

Meanwhile, mounting concerns over beleaguered Greece have forced the European Union to delay a pivotal summit aimed at resolving the region’s debt crisis.

The meeting of political leaders was supposed to begin next Monday but has been pushed back by a week to give international inspectors more time to complete their work in Athens.

Monitors from the International Monetary Fund, the European Central Bank and the European Union are busy trying to gauge whether Greece is fulfilling promises made under last year’s £95billion bailout.

But the delay will raise fears that the ‘troika’ could withhold the next slug of bailout funds, forcing Greece into default and triggering pandemonium on financial markets.

It is also a setback for France and Germany, which this weekend claimed to have reached ‘total’ agreement over a plan to shield the fragile European banking sector from the debt storm.

German Chancellor Angela Merkel and French president Nicolas Sarkozy have given themselves until the start of November to agree a deal to strengthen Europe’s beleaguered banks.

Yesterday Franco-Belgian lender Dexia became the first bank to fall victim to the 20-month debt crisis, which is threatening to unleash a credit crunch and double-dip recession.

In a sign that the Greek contagion is spreading to the core of the euro area, the Brussels authorities yesterday had to nationalise Dexia’s retail operation in the region.

The French and Belgian governments have thrown a €90billion safety blanket under the remainder of the group, with Dexia’s portfolio of toxic assets to be dumped into a ‘bad bank’.

Dexia was pushed to the brink of bankruptcy after being frozen out of inter-bank lending markets amid fears over its vast exposure to Greece and other debt-laden eurozone members.

Official data showed that the fear gripping the money markets is mounting as overnight deposits by lenders at the European Central Bank surged to a 15-month high.

Merkel and Sarkozy hope that their re-capitalisation plan, which could see several hundred billion euros pumped into Europe’s banks, will unblock money markets and ease the flow of credit to consumers.

But in a blow to the eurozone powerbrokers, ratings giant Moody’s yesterday argued that the mooted rescue plan would only provide a ‘temporary respite’.

The main cause of the eurozone’s woes is the mountains of debt built up by peripheral nations, such as Greece, Portugal and Ireland. Until that was addressed, investors were likely to give ‘fragile’ Europe a wide berth, Moody’s warned.

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Tags: bailout, delayed, Eurozone, Greece, knifeedge, Slovakia, Summit, vote

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