(Adds quotes, background)
* Pumping money into system won't solve debt crisis-Miklos
* Structural reforms in western Europe a must
* EFSF, ESM alone not a solution for current euro troubles
* Markets calculate rationally that bailouts may continue
By Martin Santa
BRATISLAVA, Dec 2 (Reuters) - Financial markets are behaving
rationally in pricing in a risk that more euro zone economies
may need bailouts, Slovak Finance Minister Ivan Miklos said on
Thursday, calling for greater budget discipline in the bloc.
In an interview, Miklos told Reuters the European Financial
Stability Facility (EFSF) and European Stability Mechanism (ESM)
alone would not solve the euro zone's government debt problems
and said it was useless to blame the crisis on speculators.
Miklos, an advocate of fiscal discipline in Slovakia's
right-wing cabinet, rejected the idea that financial markets
were acting irrationally and exacerbating the crisis that has
forced Greece and Ireland to take tens of billions of euros in
emergency loans.
"To blame speculators (because) a crisis has emerged is like
blaming gravity for a plane crash," Miklos said.
"Markets are calculating rationally, they price in that
bailouts will continue."
Slovakia, a central European country which joined the euro
zone as its poorest member last year, has already made a mark as
a dissenter, supporting tough policies for countries with big
deficits.
It refused to take part in the rescue of Greece, in part
because of popular resistance to bailing out a country where
wages are much higher than in Slovakia.
BOND-BUYING 'RISK'
Miklos said that the European Central Bank's bond-buying
programme was a clear breach of its principles, delaying a
market clean up and restoration of balance.
"To stop an expansive monetary policy and the pumping of
more money into the economy is part of the solution on how to
clean up markets and to restore balance," he said. "If not,
there is a risk the problems will only balloon."
The ECB says it withdraws funds from the market to offset
any money it injects by buying bonds, thus differentiating its
operations from the U.S. policy of quantitative easing which is
designed specifically to pump extra money into the economy.
Markets are already discounting an eventual rescue of
Portugal although the government in Lisbon denies, as Irish
leaders initially did, that the country needs outside aid.
While a Portuguese rescue could be covered from the EFSF,
assistance for its neighbour Spain would sorely test EU
resources, raise deeper questions about the integrity of the
currency area and possibly spread contagion beyond Europe.
Miklos said he was "feeling pressure towards a fiscal union"
among euro zone members, although he could not imagine one
actually existing.
Slovak public debt stood at 35.4 percent of gross domestic
product GDP at the end of last year, far below the EU average --
a policy that investors have rewarded. The market premium for
holding Slovak 10-year bonds rather than euro zone benchmark
German Bunds was 146.7 basis points on Thursday, compared with
Portugal's extra cost of 352.9 basis points.
Miklos said instead of printing money, western Europe must
reform pensions and health care to curb costs.
Slovaks plan to cut the public deficit to 4.9 percent of the
GDP from 7.84 percent seen in 2010, with help of tax hikes and
lower state spending.
(Editing by Patrick Graham/Ruth Pitchford)
