Slovenia lurched toward early elections and a bailout after the Citizens List party pulled out of the ruling coalition because of corruption allegations against Prime Minister Janez Jansa.
Citizens List, which announced the move yesterday, has seven lawmakers in the 90-member chamber, leaving Jansa short of the 46-vote majority needed to pass legislation. The premier said today that the economic situation is “serious” and the country can’t afford its second early poll in a year.
“Slovenia needs a snap election like it needs a hole in the head,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said yesterday in an e-mail. “Slovenia sticks out like a sore thumb in the central European region in terms of the severity of the economic downturn this year. Political risk is the last thing the country needs.”
The Alpine nation is looking to avoid becoming the sixth euro-area nation to resort to financial aid after the government devised a 4 billion-euro ($5.32 billion) bank bailout. Jansa’s Cabinet, less than a year in office, is working on an economic overhaul and savings measures to cope with the country’s second recession in three years.
The cost of insuring the debt with credit-default swaps, which rise as perceptions of creditworthiness worsen, increased to a month high of 268, the third-highest level among countries in emerging Europe tracked by Bloomberg.
“The economic situation in the country is serious,” Jansa told reporters in Ljubljana, adding the government will continue with its work during the crisis. “I won’t seek a confidence vote, but lawmakers can propose one. We have no problem being in opposition and letting someone else taking the helm that would have a majority in parliament.”
Early elections would mean “a dead run for several months” and there would be no guarantee the result would produce “a more stable government,” Jansa said. He wants party leaders to agree on changes to the election system to avoid future political crises.
Other partners in the five-party coalition have said they may also quit after the anti-graft agency found Jansa failed to declare more than 200,000 euros in private assets, raising the chance of a second early vote in less than a year. The premier has called the omission an accident.
Citizens List leader Gregor Virant said in televised remarks yesterday that he’ll resign as parliamentary speaker, while Janez Sustersic, another party member, will step down as finance minister.
An early vote would mean “a stalling of implementation of the bad bank legislation and no further reforms possible,” Peter Attard Montalto, a fixed-income strategist at Nomura International Plc in London, said in a note to clients today.
“While Jansa’s has struggled with moving forward reforms, its direction of slow travel has been more investor and credit friendly than the previous set up, and a switch now to the more popular opposition in an election would spell more fundamental inability to get out of the recession,” he said.
The country risks a credit-rating downgrade, an increase in risk premium on Slovenian bonds and in the cost of capital in case of snap elections, Jansa said Jan. 11. Moody’s Investors Service rates Slovenia at Baa2, its second-lowest investment grade, while Standard & Poor’s gives it an A rating with a credit-watch negative outlook.
An early vote also “wouldn’t be helpful” in efforts to approve Croatia’s European Union accession treaty as Slovenia needs a two-thirds majority to do that, Jansa said. Croatia’s goal is to become the bloc’s 28th member in July.
Slovenia may sell as much as 3 billion euros of debt this year to repay maturing credits as yields fall, finance the budget and recapitalize the banking industry, Deputy Finance Minister Dejan Krusec told reporters in Vienna Jan. 15.
The former Yugoslav republic sold $2.25 billion of 10-year bonds in October with a yield of 5.7 percent on increased demand on the U.S. debt market.
The yield on the notes rose 3 basis points by 2:29 p.m. in Ljubljana to 5.17 percent, the highest since Dec. 18 on a closing basis, according to data compiled by Bloomberg. The SBITOP share index slid 0.1 percent from to close at 639.04 in fourth consecutive drop this week.
“Slovenia must ensure its liquidity after the October bond sale,” Jansa said today. “With that sale, we ensured liquidity for several months, probably for half a year.”
Addressing criticism that his party was triggering political turmoil, Citizens List’s Virant, who favors an early vote, blamed Jansa and said the crisis began when the anti-corruption commission presented its findings.
Jansa said he will appeal the findings, which he called a “political inquisition.”
Sustersic helped pass legislation to create the so-called bad bank that will take non-performing loans from lenders such as Nova Ljubljanska Banka d.d. and Nova Kreditna Banka Maribor. In exchange, the banks would receive government-guaranteed bonds. Lawmakers also passed budgets for this year and next as well as changes to the pension system to ease the burden on public finances.
Gross domestic product fell 3.3 percent from a year earlier in the third quarter, the third-biggest drop in the euro region after Greece and Portugal, as consumption slumped and exports to Europe eased.