The European Commission wants to expand the EU’s bailout fund, the European Financial Stability Facility or EFSF. But one country stands in the way: Slovakia.
Today, the EC urged Slovakia to get in line with the rest of the 17 other eurozone member nations and vote yes on changes to the EFSF that will permit the fund’s expansion. Germany approved changes this week. Austria, the Netherlands and Malta haven’t voted yet, but they’re expected to give the changes the thumbs-up. In Slovakia, however, many politicians are opposing a yes vote.
Slovakia is the world’s 60th largest economy, with around 5.5 million people. It’s tiny, and yet it now has the power to decide whether or not Greece defaults on its billions of euros of debt. The EC says there’s no plan B if the bailout fund isn’t enlarged.
This is how the eurozone works; it requires unanimous ratification of legislation by member states. No U.S.-style two-thirds majority on constitutional amendments there. Which means it takes just one country to derail legislation. And yet eurozone states are not created equal; Slovakia is poorer than Greece, but just like many in wealthy Germany, Slovaks are unhappy about having to contribute money to help bail out their profligate brethren.
Martin Edwards is Associate Professor at the Whitehead School of Diplomacy and International Relations at Seton Hall University. He says that Europe was aware of the different economic situations of member states when it formed, and then expanded, the eurozone. It had a plan to deal with this issue: a structural fund to transfer money from big wealthy eurozone members such as Germany, to smaller and poorer members such as Slovakia. That fund is the stick that the EC can use to herd Slovakia into line. Edwards imagines the conversation going something along the lines of, “Nice little structural fund you got there Slovakia… shame if something happened to it.”
Edwards says that this points to a big problem across the globe; when times are hard, nobody sees the benefits of cooperation; only the costs. That makes it difficult for politicians to vote on volatile issues such as enlarging the bailout fund. He compares today to the heady years before the financial crisis when the benefits of eurozone membership were obvious and cooperation within it made sense. Edwards says if it passes, this vote could be the high water mark for EU cooperation.
Also on the show, there’s nothing like an ice cream to boost your morale. But seems like even ice cream is getting the cold shoulder. Ice-cream chain Friendly’s says it could file for bankruptcy as early as next week. That news has dented our morale somewhat, and pushed the Marketplace Daily Pulse down a beat.