BUSINESS
10/11/2011 03:57 EDT | Updated 12/10/2011 05:12 EST

Slovakia to vote on EU bailout fund, government coalition meets in efforts to agree a deal

BRATISLAVA, Slovakia - Slovakia's prime minister has raised the stakes ahead of a crucial vote on expanding Europe's bailout fund, by linking it to a confidence vote in her government.

Ahead of talks with her coalition partners, Iveta Radicova confirmed that a coalition partner has not accepted a compromise offer and added that the vote later in Parliament "will be linked to a confidence vote in this government."

That suggests her government will fall if the vote is not carried, though it does not necessarily mean early elections under the terms of the Slovak constitution.

On Monday, the four-party coalition, which met for three hours, was unable to agree on a compromise deal.

The 17 nations that use the euro must all approve expanding the powers of the bailout fund, which is designed to shore up Europe's defences against the debt crisis.

Slovakia's "no" would be a bad signal for already nervous financial markets. Ahead of the vote, European markets were giving up some of their recent gains though remained sharply higher on the week. The euro meanwhile was solid above $1.36.

All other EU nations have backed the expanded powers for the EU bailout fund.

Slovakia, a nation of 5.5 million people, would contribute about 1 per cent, or €7.7 billion ($10.5 billion). With the help of EU funds and foreign investments, it has benefited significantly from its membership in the eurozone and the EU and become a leading European car exporter.

The outcome of the Slovak parliamentary vote is uncertain because a junior member of the four-party governing coalition is strictly opposed to boosting the fund.

The Freedom and Solidarity Party's chairman, Richard Sulik recently described the expanded bailout fund "a road to hell" and vowed again Monday to block it.

Without the votes from Sulik's party, the coalition government would have to rely on the opposition, but it's unlikely to provide any help.

The major opposition party, Smer-Social Democracy of former Prime Minister Robert Fico, supports the fund expansion in principle but was ready to vote for it in exchange for nothing less than early elections.