The European Financial Stability Facility for euro zone loans is not operational as planned on July 1st because Slovakia has yet to approve it, a European Commission source said.
The EFSF was to become active by the end of June and, if necessary, raise on the maket up to €440 billion that would be guaranteed by all euro zone states. The money could then be used to lend to a euro zone member that is cut off from market financing, in exchange for austerity reforms.
But for this to happen, all 16 euro zone members need to sign the EFSF framework agreement.
"As far as I am aware, that is not the case, Slovakia has not signed," the Commission source said.
Until Slovakia signs, the European Union can still help its members for whom market financing costs have risen above sustainable levels from a €60 billion pool of money that is guaranteed by the EU budget.
"We have the €60 billion that are ready ... the situation is not so serious in that sense," the Commission source said.
"Of course there is some level of uncertainty, altough we still hope that Slovakia will fulfill its commitments."
Once all countries have signed the EFSF agreement, it can be approved by parliaments of euro zone countries and governments can send back to the EFSF, a confirmation of commitment for their share of guarantees.
Slovakia's share of the total is about €4.4 billion, but outgoing Slovak prime minister Robert Fico has said his government lacked a mandate to do so after losing June 12th elections to a coalition opposed to European aid to Greece.
He said it was ready to sign if given the nod by the coalition of centre-right parties led by incoming prime minister Iveta Radicova that are now trying to form a government.
Ms Radicova sent no such signal to Mr Fico, but also indicated today that Slovakia would not block the creation of the EFSF, even if it may not fully participate in the guarantees.
"Political agreement about the European safety net is irreversible and the new government will therefore not block its creation," she said in a statement.
"There will be negotiations about the size, safety measures and requirements, if it came to a real use of this mechanism's guarantees."
In a sign that work on setting up the EFSF was continuing, the chief executive of the Luxembourg-based company Klaus Regling took office today as planned.
Reuters