‘No money to backup bailout promises’

Slovakia has given the final go-ahead to expanding the bailout fund aimed at tackling the Eurozone debt crisis. But this will not be a remedy for Greece, economist James Meadway told RT, as default is inevitable.

­The Slovakian Parliament ratified a plan to support a Eurozone rescue fund, after Tuesday's vote against it saw the country's ruling coalition collapse.

The plan is expected to expand the effective lending capacity of the European Financial Stability Facility (EFSF) to 440 billion euros ($600 billion).

The increased cash would go to struggling nations such as Greece, where daily life has been ground to a halt by a 48-hour strike against the government cuts.

Meadway, a senior economist at the New Economics Foundation, an independent UK-based think tank, said whatever lift Slovakia’s vote might provide would have little lasting impact.

I do not think it addresses any of the fundamentals,” he said. “The EFSF itself is quite a flimsy mechanism…. The trouble is, you can make a promise to pay, but when someone actually expects the money to turn up, you can see this promise evaporating very rapidly.

Meadway warned that European banks may feel the fallout from a Greek default, as Greek debt is held by banks inside the Eurozone.

We have already seen the French-Belgium bank Dexia last week suffering as a result of just the potential of default,” he noted.

French and German banks are the most exposed to Greek debt, and are likely to suffer huge losses. But the major holder of Greek debt is the banking system in Greece itself. If there is a default, this system will be simply “wiped out,” Meadway told RT.

Ripples from the Eurozone crisis spread to UK banks on Thursday, with the Fitch ratings agency downgrading the credit ratings of two huge British banks, Lloyds and Royal Bank of Scotland.

It is pretty much like dominoes dropping across the continent,” said Meadway. “The downgrade itself is not necessarily something to worry about. What is indicative is that these banks are themselves tied into a deeply dysfunctional European banking system.

Fitch’s decision follows Moody’s earlier move to downgrade the debt of Lloyds Banking Group, Santander UK, Royal Bank of Scotland, Cooperative Bank, Nationwide and seven smaller institutions.