Arab Today, arab today with slovak vote eurozone gets new debt crisis weapon
Last Updated : GMT 06:55:28
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Arab Today, arab today

With Slovak vote, eurozone gets new debt crisis weapon

Arab Today, arab today

Arab Today, arab today With Slovak vote, eurozone gets new debt crisis weapon

Brussels - AFP

Slovakia finally ratified the eurozone bailout fund on Thursday, removing the final hurdle to beef up defences against the debt crisis set to deal a heavy toll on Europe\'s banks. The vote to reinforce the fund\'s powers to help eurozone governments and banks in distress means a second bailout for Greece agreed in July but frozen by international auditors can now be re-negotiated at an EU summit on October 23. Slovakia became the last country in the 17-nation eurozone to agree to expand to 440 billion euros ($600 billion) the European Financial Stability Facility (EFSF), the eurozone\'s primary weapon against the debt debacle. \"Although the price was high, I\'m glad we made good on our obligations and we\'re not blocking this tool designed to prevent the eurozone crisis,\" said Slovak Finance Minister Ivan Miklos. An initial rejection earlier this week toppled Slovakia\'s centre-right government and in order to secure support to approve the EFSF in the second vote it agreed to call elections in March. With the Slovak hurdle out of the way, the European Union can now focus on plans to recapitalise banks amid the rising likelihood that those holding Greek debt will have to take bigger losses. The vote also saved Europe from an embarrassing setback ahead of G20 talks in Paris this weekend, amid pressure from the United States and other economic powers for the EU to prevent the crisis from triggering a global recession. \"The EFSF provides us with a stronger, more flexible tool to defend the financial stability of the euro area,\" EU president Herman Van Rompuy and European Commission president Jose Manuel Barroso said in a joint statement. The new-look EFSF will be able to inject money into shaky banks or intervene instead of the European Central Bank to support weaker eurozone countries facing problems in raising fresh funds on the markets. EFSF chief executive Klaus Regling said afterwards that the fund would \"use the new instruments in the near future.\" Amid US calls to further boost the fund\'s firepower, an EU source said the European Commission may propose to \"leverage,\" or increase the EFSF as much as fivefold to 2.5 trillion euros, without governments needing to provide new guarantees. The spotlight is now on Europe\'s banking system, with the European Commission pressing banks to urgently beef up their coffers to cope with the crisis. In Paris, the French finance ministry said banks exposed to Greek debt will probably be forced to write off more than the 21 percent so far proposed in a July eurozone accord on a second bailout for Athens. \"The discussions are on a cut of 50 percent,\" a source from a European government told AFP. But the European Central Bank warned against forcing banks to take a hit. \"The ECB has strongly advised against all concepts that are not purely voluntary or that have elements of compulsion, and has called for the avoidance of any credit events and selective default or default,\" it said. The July deal was for 109 billion euros in loans to Greece from the EFSF plus another 50 billion in write-downs from private creditors. Asked if a higher percentage meant a revamped bailout worth more than the combined 159 billion, Luxembourg Prime Minister Jean-Claude Juncker said: \"I don\'t want to speculate around this kind of question, all these things will be dealt with of course at the European Council.\" \"We are discussing these things,\" said Juncker, the head of Eurogroup finance ministers, after evening talks with Greek Prime Minister George Papandreou in Brussels. Juncker said he was now \"really optimistic\" ahead of a final auditors\' report due next week that will allow eurozone ministers to release a blocked eight-billion-euro loan to Greece from the first bailout when they meet next weekend. He added: \"All those who are speculating that Greece could be obliged to leave the euro area are misled... This will not happen as it will not happen that we have to face a Greek default.\" The euro and European stocks nontheless fell on concerns over the banking system, with London down 0.97 percent, Frankfurt off by 1.45 percent and Paris dropping 1.23 percent. The head of one major lender, Germany\'s Deutsche Bank, voiced reluctance to recapitalise, saying the debate was \"counterproductive\" and that it was up to governments to restore confidence in public finances. \"It\'s not the capital resources of banks that are the problem but the fact that sovereign debt has lost its status as a risk-free asset,\" said Deutsche Bank chief Josef Ackermann.

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