Despite Slovakia’s vote Tuesday night against ratification of the expansion of the Greek bailout fund, markets and the euro on Wednesday, after a period of early losses, made substantial gains in anticipation of a second vote by the Slovak parliament that was expected to approve the measure.
The vote on the European Financial Stability Facility (EFSF) had been tied to a confidence vote on the government of Iveta Radikova, Slovakia’s prime minister, and the political opposition voted against her rather than the measure, according to a Bloomberg report. Robert Fico, leader of the largest opposition party, said after the vote that Slovakia “must sign up to the rescue fund.” Although a second vote had not yet been scheduled, talks on that vote were expected to begin Wednesday.
Markets shrugged off early losses to log their biggest gain in five weeks by midmorning, with the FTSEurofirst 300 index up 1.1%. The euro, too, rose to a high it had not seen in almost four weeks as investors expected a new vote to resolve the EFSF issue and also cashed in earlier short positions to reap profits.
According to Reuters, German Chancellor Angela Merkel said she was sure that the EFSF expansion would be ratified by the time of the European Union (EU) summit scheduled for Oct. 23. Niels Christensen, currency strategist at Nordea in Copenhagen was quoted saying, "No one really believes Slovakia is able to stop the ratification of the EFSF and that's why euro/dollar is not lower."
Another factor in the euro's rise was the statement by inspectors from the EU, the International Monetary Fund (IMF) and the European Central Bank (ECB) late Tuesday that the next loan tranche should be released to Greece in early November.