The Slovak opposition reached a deal Wednesday with members of the outgoing governing coalition to support an expansion of the eurozone's EFSF bailout fund when it goes to parliament for a revote later this week.

Bratislava voted down the key reform late Tuesday and ousted the government in the process after Prime Minister Iveta Radicova tied the ballot to a vote of confidence in her administration.

Opposition leader Robert Fico said his Smer-SD party had reached an agreement with parties in the outgoing coalition to vote in favor of strengthening the European Financial Stability Facility (EFSF) by Friday in exchange for pledges to hold general elections by March.

"The [economic] crisis would only get bigger without the rescue mechanism," said Fico.

Radicova lost because she failed to get the fourth member of her coalition government, the neo-liberal Freedom and Solidarity party (SaS), on side.

SaS leader Richard Sulik said in a parliamentary debate on the EFSF that Slovakia had not created "these problems" and there was "no reason to pay for them."

The central European country is the last of the 17 eurozone members to vote on the EFSF - a reform package seen as vital for the zone to deal with a growing economic crisis. The bailout fund has to be ratified by all eurozone members to take effect.

EU response

Barroso unveiled a five-point proposal to EU lawmakers

With the Slovak parliament likely to throw its support behind an expanded EFSF, focus should now shift to efforts at the European Union level to combat the debt crisis.

EU Commission President Jose Manuel Barroso said Wednesday that "now is the time ... to once and for all meet the depth of the crisis with a full comprehensive and credible response."

Barroso was unveiling new proposals for battling the "threat of a systemic crisis." The draft presented to EU lawmakers focused on rebuilding trust in Greece; strengthening banks; boosting growth; and reinforcing economic governance.

"While these doubts persist and spread, sufficient confidence cannot be restored to allow liquidity to flow again and to oil the growth that our economies so badly need."

Barroso said the EFSF should only be used as a last resort, and that banks that fail to recapitalize should be barred from paying out dividends and bonuses.

Germany's private banking association (BdB) attacked Barroso's proposals, however, saying they failed to address to root problems of the debt crisis. "A ban on distributing dividends will be counter-productive as it will complicate raising capital on the market," said BdB director Michael Kemmer.

Public ambivalence

On Tuesday, 55 Slovak parliamentarians out of 150 voted in favor of the EFSF, with nine voting against and 60 abstaining.

Slovak politicians said it was difficult to convince the public to back the deal because they held that Slovakia did not receive any foreign help when it restructured its finances in order to get into the European Union.

Radicova (left) failed to get the SaS party on side

Following the loss of the confidence vote Radicova will have to resign, but she will stay in office until a new administration is in place.

She said she was personally committed to having the EFSF ratified by October 14, preempting pressure from Brussels that had called for a unanimous result before a meeting of eurozone leaders on October 23.

"Slovakia has to create political conditions which will allow a positive vote on the EFSF as soon as possible," said European Council President Herman Van Rompuy.

Speaking at a business conference in the Vietnamese financial center Ho Chi Minh City on Wednesday, German Chancellor Angela Merkel said she was confident the EFSF would pass by October 23.

She also suggested the eurozone might have to expand its bailout fund further still.

It could continue to operate in its current form, but bailouts for Italy and Spain would strain it.

Slovakia's share in guarantees that back up the EFSF lending volume is about 7.7 billion euros ($10.6 billion) - about 1 percent of total guarantees.

Open letter

Pressure to find a fix is also growing beyond Europe's borders.

Merkel said she remains confident about Slovakia

Billionaire investor George Soros and about 100 other prominent individuals published an open letter on Wednesday, warning the eurozone debt crisis could destroy the global financial system.

The letter calls for the establishment of a European finance ministry and better financial market oversight.

It came as markets reacted negatively to the Slovak rejection of the EFSF.

The European common currency fell early as Asian markets lost confidence and shares slipped and ended a four-day rally.

But European shares bounced back by late morning on the back of stronger metals prices.

Author: Zulfikar Abbany, Darren Mara (dpa, AFP, Reuters)

Editor: Martin Kuebler