Jan. 12 (Bloomberg) -- Slovenia’s governing crisis deepened after lawmakers rejected premier-designate Zoran Jankovic, leaving the euro nation struggling with increasing debt and the threat of a cut to its sovereign credit rating.
Jankovic, the Ljubljana mayor who won a snap election last month, fell four votes short of the 46 needed in parliament yesterday to be approved as prime minister. The rejection means President Danilo Turk, who mandated Jankovic, 59, to form a government, has two weeks to name a new candidate, including Jankovic again. Ten lawmakers can also submit a proposal for a premier. If those efforts fail, Turk can call a new election.
“The longer it takes, the bigger the risk to public finances, the current account, the financial channels and the real economy because of the absence of a government,” said Michal Dybula, an economist at BNP Paribas in Warsaw. The risk for Slovenia is “a further widening of debt spreads and that financing costs, not only for the government but the whole economy, are going to continue to rise at a rapid pace.”
Slovenia, the first post-communist nation to adopt the euro five years ago, needs to cut public spending to comply with a new fiscal pact that is being pushed by German Chancellor Angela Merkel and French President Nicolas Sarkozy as they seek to stem the sovereign debt crisis in Europe.
The euro-region nation had its credit rating lowered one level to A1 on Dec. 22 by Moody’s Investors Service on the risk the government finances may deteriorate from a possible need to support its banks.
Fitch Ratings, which put Slovenia’s AA- score on “rating watch negative” last month, said on Jan. 9 that it will probably make a decision on the credit grade for euro-area nations by the end of the month.
Slovenian borrowing costs surged past 7 percent on Nov. 11 as the debt crisis threatened to engulf neighboring Italy, its third biggest trading partner after Germany and Austria. The yield on government notes maturing in January 2021 advanced to 7.089 percent at 12:11 p.m. in Ljubljana from 7.031 percent yesterday, according to mid-pricing data compiled by Bloomberg.
Slovenia’s five-year credit-default swaps rose four basis points to 407 at 10 a.m. in London, according to data provider CMA. The derivatives are used by investors to speculate on the country’s ability to repay debt.
“Waiting too long to form another government, or even another early vote, would be a very bad signal to investors,” said Igor Masten, an economics professor at the Ljubljana Economics University. “The best option for Slovenia now would be a technical government as we have seen in Italy or Greece, but just until the end of June, so that such an administration ensures a much-needed capital boost for banks and adopts fiscal savings measures.”
Turk said after the vote he “regretted” the outcome and will start a new round of talks with party leaders before nominating a new candidate sometime in the next two weeks. He didn’t say who he was considering as a premier.
The debt crisis that has roiled European markets and sent yields soaring has taken its toll on political leaders. The previous prime minister, Borut Pahor, is among six European Union leaders who have already given up power, while Slovakia will hold its own snap election in March.
Slovenians went to the polls on Dec. 4 after Pahor’s administration was toppled in September for failing to convince voters on the need to extend the retirement age and its inability to cut spending.
The former Yugoslav nation that is probably sliding into recession will need to cut spending by about 1 billion euros ($1.28 billion), central bank Governor Marko Kranjec said on Jan. 6.
“Bank losses will be even bigger this year as assets continue to decline, the fight for deposits intensifies and financing from abroad shrinks,” Kranjec said.
Nova Ljubljanska Banka d.d. and Nova Kreditna Banka Maribor d.d., the country’s biggest lenders, are struggling with the effects of the 2009 recession and mounting bad loans as more and more companies file for bankruptcy. NLB, as the biggest bank is known, wants to raise 400 million euros in equity capital by mid-2012 to improve its core Tier 1 capital ratio to above 9 percent.
Jankovic’s Positive Slovenia won 28 seats in the 90-member chamber, followed by former premier Janez Jansa’s group with 26 lawmakers. Pahor’s Social Democrats have 10 seats and the Citizens’ List of Gregor Virant, a minister in Jansa’s government, has eight lawmakers, according to official results from the state electoral commission.
The People’s Party and the Pensioners’ Party each have six seats, while the New Slovenia party has four. Two seats are held by the constitutionally recognized communities Hungarians and Italians in the country.
To contact the reporter on this story: Boris Cerni in Ljubljana at firstname.lastname@example.org
To contact the editor responsible for this story: James M. Gomez at email@example.com