BRATISLAVA, October 12, (WEBNOVINY) — Slovak Parliament’s rejection of eurozone’s bailout fund enhancement on Tuesday has not markedly rattled global markets. They count that the EFSF extension will eventually be approved in Slovakia thanks to opposition votes after the initial fiasco, bank analysts addressed by SITA news agency opine. “If eventual rejection of changes to the rescue mechanism loomed large, short-lived reaction was likely to have been much more negative. The whole process would be protracted and more complication but the eurozone would be able to deal with the situation without Slovakia in this case,” said analyst with Slovenska Sporitelna Michal Musak.
CSOB analyst Marek Gabris says that although recent events have kept European markets in suspense, they mostly handled the pressure and registered only a slight decline. The situation on US markets has been similar with the Dow Jones Industrial Average (DJIA) having lost only 0.15 percent and S&P500 improving 0.05 percent. Gabris thinks that euro-dollar is still awaiting further development. On European markets, the US dollar strengthened at first and was followed by a firmed European currency on Tuesday. The exchange rate has almost reached the level of Tuesday morning on Wednesday.
Gabris says that markets generally assume that despite Slovakia’s initial no to EFSF expansion, it will be okayed in the second vote. “Cabinet’s fall is currently not so important for European financial markets,” claims Gabris. The end of Prime Minister Iveta Radicova’s Cabinet can be more important for Slovakia alone. “I fear that our rating may fall, as it happened in Slovenia, which can translate in higher risk surcharges on bonds and indirectly to higher prices of loans,” added the analyst.
Analysts are also analyzing possible effect of further development on the Slovak political scene on the Slovak public debt. Michal Musak of Slovenska Sporitelna views SMER-SD’s support to the bailout fund conditioned on early elections to be the most likely alternative. The second alternative is a government of SMER with one of several coalition parties. “Other scenarios, for example a minority government or the same coalition with reconstructed Cabinet, appear to be less likely for now,” assumes the analyst.
Musak also thinks that the fall of the government may increase the risk surcharge for Slovak bonds. Decomposition of the government may moderate fiscal objectives or at least slow down implementation of measures aimed at deficit reduction. “In addition to that Standard & Poor’s has recently revised its outlook of Slovakia’s rating to positive and possible positive correction may thus be postponed. In this context, the scenario with early election may seem riskier since it will be more difficult to enforce unpopular measures prior to elections. And also, parliament has not discussed next year’s budget yet,” reminded Musak.
SITA