Slovakia has ratified the eurozone bailout fund, removing the final hurdle to boosting eurozone defences against the debt crisis, as a new ratings downgrade for Spain underlined the need for action.

The Slovak parliamentary 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 ($600 billion) the European Financial Stability Facility (EFSF), the eurozone’s primary weapon against the debt debacle.

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 hold elections next March.

“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 the Slovak Finance Minister, Mr Ivan Miklos.

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 week-end, amid pressure from the United States and other economic powers for the EU to prevent the crisis from triggering a global recession.

However, it did not prevent more bad news for the eurozone which has already been obliged to bail out Ireland and Portugal as well as Greece.

Standard & Poor’s cut fellow eurozone member Spain’s long-term credit rating by one notch to “AA—” from “AA” with a negative outlook, following downgrades to the country’s top banks.

S&P cited high short-term external debt, which was at 50 per cent of GDP in the second quarter of 2011, leaving “the economy vulnerable to sudden shifts in external financing conditions’’.

On October 11, S&P had downgraded the credit ratings of top Spanish banks, including Santander and BBVA, a move followed by fellow ratings agency Fitch over poor growth prospects.

Earlier this month Fitch slashed Spain’s sovereign credit rating by two notches.

Meanwhile, the European Central Bank chief, Mr Jean-Claude Trichet, said the ECB had done what it could to solve the eurozone debt crisis and it was now up to governments to act.

Related Topics