Slovakia is NOT going to take down the Eurozone

October 11, 2011

st paulie girlThe talk going around of a doomsday scenario where Slovakia takes down the Eurozone by failing to approve an increase to the EFSF is ridiculous. Perhaps there are many valid reasons to be bearish but this isn’t one of them. The Slovakian government may get over-hauled through this process but in the end, there will be a vote to go along with the rest of the 16 EU states that have voted to expand the EFSF.

For perspective, Slovakia has about 5.5M people. Slovakia has been talking tough because they only comprise about 0.7% of the EU-17 GDP yet are contributing 1.0% of the capital to the EFSF. This gives them a say but it isn’t reasonable to expect a Eurozone crisis because of any votes which take place in Slovakia for political gains.

In a worst case scenario I could see two options:

One: The rest of the EU-17 fund Slovakia’s 1% and they simply don’t contribute to a new restructured EFSF. Of course there would be a blackballing consequence and Slovakia’s economy would surely suffer.

Two: This derails the EFSF and leads to expanded powers at the ECB. The ECB doesn’t want a greater direct role but would take one to avoid a crisis.

I don’t think either of the above are necessary because ultimately whether on the first vote or the second vote Slovakia will come around and support an expanded EFSF. For now there are some political semantics going on.

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