Positive Slovenia Party Wins, Faces Rising Debt, Recession

The Positive Slovenia party of Ljubljana Mayor Zoran Jankovic, which won a surprise electoral victory, needs to persuade potential coalition partners the two- month-old party can tackle rising debts and a faltering economy.

Jankovic, the former head of retailer Mercator Poslovni Sistem (MELR) d.d., led his party to victory with 28.5 percent, while opposition leader Janez Jansa’s Slovenian Democratic Party came in second with 26.3 percent, the electoral commission said after polls closed in yesterday’s snap elections.

Slovenia, the first former communist country to adopt the euro, is struggling with the euro region’s sovereign debt crisis, which erodes demand for its exports. It risks sliding back into recession as borrowing costs surge to records, while public debt may widen to more than 50 percent next year.

“I’m aware of the seriousness of Slovenia’s position and if I didn’t believe that we can do it, then I wouldn’t be standing here today,” Jankovic, 58, told cheering supporters at a rally in central Ljubljana after the results.

The debt crisis that has roiled European markets and sent yields soaring is also taking its toll on political leaders. Pahor is among six European Union leaders who have already given up power, while Slovakia will hold its own snap election in March. In neighboring Croatia, a former federal partner in the defunct Yugoslavia, an opposition alliance toppled the government in scheduled elections last night.

Photographer: Jure Makovec/AFP/Getty Images

Zoran Jankovic, left, and his wife Mia cast their ballots at a polling station in Ljubljana. Close

Zoran Jankovic, left, and his wife Mia cast their ballots at a polling station in Ljubljana.

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Photographer: Jure Makovec/AFP/Getty Images

Zoran Jankovic, left, and his wife Mia cast their ballots at a polling station in Ljubljana.

Mercator Experience

“As investors, we can only see the track record of the company Mercator. It is a good company and this speaks for the quality of Mr. Jankovic,” said Lutz Roehmeyer, a fund manager at Landesbank Berlin Invest in Berlin who oversees 11.5 billion euros ($15.3 billion) and holds Slovenian bonds. “The change in leadership is a first step, but what we need to see are now clear steps in cutting budget expenses and reforms to foster growth.”

Slovenian notes maturing in 2021 advanced, paring an earlier drop and pushing the yield down 6 basis points to 6.65 percent at 3:17 p.m. in Ljubljana, from 6.71 percent on Dec. 2, according to Bloomberg data. A basis point is a hundredth of a percentage point.

The economy shrank 0.5 percent in the third quarter from a year before, following growth of 0.8 percent in the previous three-month period and public debt has more than doubled in four years.

Recession Risk

The risk of recession “has risen greatly,” Michal Dybula, an economist at BNP Paribas in Warsaw wrote in a Nov. 29 note to clients.

“The focus of economic policy will be on reducing the fiscal deficit in line with the Excessive Deficit Procedure of the EU,” Goran Saravanja, chief economist at Zagrebacka Banka d.d., a unit of UniCredit SpA (UCG) in Zagreb, wrote in a note to clients today. In the ongoing crisis in Europe “government financing pressures within the core as well as the periphery of euro region are ever increasing, with any shortfalls in policy being rapidly punished. The newly elected government will have to act quickly to protect Slovenia against excessive pressures.”

Jankovic started the political party on Oct. 11, saying Slovenia should abandon old political divisions that led to the ouster of Premier Borut Pahor. He campaigned on promises to insulate the nation from the sovereign debt crisis, spur the economy and work on changes in the pension and health systems.

Snap Election

The snap election was called after Pahor lost a Sept. 20 no-confidence vote triggered by coalition disputes over pension changes and after voters rejected the extension of the retirement age in a referendum. Pahor’s party garnered 10.5 percent.

Jankovic was chief executive officer of Mercator, the Balkan region’s largest supermarket chain, for eight years, stepping down in 2005. He became mayor of the capital city a year later and won re-election in 2010.

The euro area’s troubles will be solved and the bloc will survive, Jankovic said.

“The euro is fighting its first big crisis but it will endure,” he said in response to Bloomberg questions on Dec. 2. “All of Europe should work toward that goal.”

Jansa, an ex-premier who led the former Yugoslav republic into the euro region, conceded defeat and said the tight race may result in a weak government and another round of early elections.

President Danilo Turk said he hopes to designate a prime minister by the end of the year, with a government in place by early January. Jankovic, during comments after the vote, didn’t suggest any possible coalition partners.

Coalition Building

“Talking about the prospects is also very hard because Jankovic will not rule Slovenia on his own,” said Landesbank Berlin’s Roehmeyer. “He has a very narrow lead in polls and depending on the coalition, the parties will be nearly equal partners.”

Jansa was slated to win the vote, with 31.4 percent support, according to a Dec. 2 survey by polling agency Ninamedia, according to Dnevnik newspaper. Jankovic’s party was seen taking 23.3 percent and Pahor’s party had 12 percent, the poll showed.

Voters were choosing candidates for the 88 seats in the 90- member assembly as two seats are reserved for representatives of the Italian and Hungarian minorities.

Worsening Outlook

Jankovic will need to tackle the worsening fiscal outlook and the weakening economy as German Chancellor Angela Merkel and French President Nicholas Sarkozy muster support for closer economic integration and tougher policing of fiscal rules.

The country, which had its credit rating cut by one level to AA- by Standard’s and Poor and other ratings services, plans to raise 1 billion euros ($1.4 billion) in a Treasury bill auction on Dec. 6.

If that fails, the Finance Ministry said it may opt to sell bonds in the U.S., Japanese or Swiss debt markets. Yields on Slovenia’s 10 year bonds surged to 7.77 percent on Nov. 11, two days after Italian benchmark notes gained past the 7 percent mark. Pressure on the yield of most euro-region nations, including Slovenia’s, eased after central banks moved to improve dollar liquidity.

To contact the reporter on this story: Boris Cerni in Ljubljana at bcerni@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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