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ECB’s Kranjec Says ‘Too Early’ to Say If Slovenia Will Need Aid

Oct. 4 (Bloomberg) -- Marko Kranjec, a member of the European Central Bank’s Governing Council, said “it’s too early” to say whether Slovenia will need a financial aid package.

“If Slovenia adopts decisive measures like the bank stabilization plan, the pension and the labor market reform, then the country would not need to apply for a program,” Kranjec, also the head of Slovenia’s central bank, told reporters in Brdo, Slovenia, where the ECB council held a meeting today. “The spreads that you have noticed in the markets in our opinion do not reflect the fundamentals. The market for Slovenian government bonds is very shallow.”

Slovenia, which adopted the euro in 2007, is working on the recapitalization of the banking industry and overhauling pensions and the labor market to avoid becoming the sixth euro-region nation to seek a bailout. The yield on the 2021 benchmark government bond hovered above 7 percent for most of August before falling.

Notes maturing in January 2021 rallied, pushing the yield down 39 basis points to 6.24 percent at 3:41 p.m. in Ljubljana, according to data compiled by Bloomberg. A basis point is a hundredth of a percentage point.

Lawmakers yesterday endorsed the government’s plan to stabilize the banking industry. They voted to create a special agency that will assume lenders’ bad loans and swap them for government-guaranteed bonds worth as much as 4 billion euros ($5.2 billion), according to Finance Minister Janez Sustersic.

Sustersic has said that the state-backed notes could be used by banks as collateral with the ECB.

“The ECB hasn’t decided yet on the eligibility of these bonds, so I can’t tell you if they will be accepted as collateral or not,” Kranjec said.

To contact the reporters on this story: Boris Cerni in Ljubljana at bcerni@bloomberg.net; David Tweed in Tokyo at dtweed@bloomberg.net

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

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