While Everyone Is Making Fun Of The Slovak Republic....

Tyler Durden's picture

From Peter Tchir

It seems like the Slovak Republic will agree to the current plan.  It seems like some politicians have decided that getting a general election and a chance to be in charge and have power is worth selling out what they believe in.

In the meantime, with the current structure the Slovak Republic, as small as it is, has an equal vote on some items.  Anything that is unanimous requires them to vote.  People are already downplaying any potential "NO" vote as something the other member countries would just step up and assume the Slovak's portion.  Sure, but what happened to the integrity of the Euro?  Isn't this someone starting the process of leaving the Euro?  I wouldn't dismiss the implications too quickly.  It certainly makes dreams of Eurobonds look plain silly. 

The Slovak Republic has 63 billion Eur of GDP with debt of 29 billion.  That is only 46% debt to GDP, but they are only rated A1/A+ with S&P having them on positive outlook.  Their credit has been on an upward trend.  It was A3 back in 2004 with Moody's and has been steadily clawing its way up.  It got their by being fiscally prudent.  It hasn't seen credit improvement by taking on debt obligations willy nilly.   Its EFSF guarantee commitment is 7.8 billion euro.  That is just over 10% of GDP, which as the high end, but it is 27% of its current debt outstanding.  That is a staggering amount of money.  If this country had wanted to raise 5 billion and spend it on itself, the quality of life would be much higher.  With just of 5 million people, that is about 1,000 euro per person that they are using to support countries that have more benefits than they provide their own citizens.  People can pooh-pooh what is going on in Slovakia.  They can make fun of how the whole world is focused on this little country, but they are wrong to.  This country, like Finland, is being dragged into something they don't want to do.  They are going into debt to provide money to countries who spend more per citizen than they do.  Shouldn't they be spending that money on themselves?  Taking on debt to help someone else when they have survived by being responsible makes no sense to a lot of people there.  They have a nice 2015 bond that trades about 3%.  Not great like the best countries in the Eurozone, but sustainable.  Will their commitments start impacting their own ability to raise money? 

I am sure there are backroom deals being made, promises that they will never have to make good on their guarantees, but regardless of the outcome of this particular vote, the mood and tone here should give a good indication that any Grand plan will have to be paid for almost entirely by Germany and France.  And let's not forget, this vote, which the world is closely watching, is to approve something that is already obsolete and ineffective.