March 13 (Bloomberg) -- Slovenia’s Citizens’ List party will decide today whether to join Prime Minister Alenka Bratusek’s caretaker government as she strives to avoid early elections and an international bailout.
Bratusek, who took over from Janez Jansa after he was voted out of office by lawmakers Feb. 27, must submit to Parliament a Cabinet by tomorrow. Party leaders will meet at 5 p.m. in Ljubljana, with a decision expected later today. Without Citizens’ List, the government would lack a majority as it lobbies to win a confirmation vote that may take place as early as next week, parliamentary spokeswoman Karmen Uglesic said.
Slovenia, which is struggling with its second recession since 2009 and a deepening banking crisis, was plunged into political uncertainty in January after the anti-corruption agency accused Jansa of failing to declare some private assets. If Bratusek fails to form an administration, the Alpine nation would have to hold its second early ballot in 18 months.
“Early elections would mean a loss of even more time and delay the consolidation and fixing of the banking issue,” Lutz Roehmeyer, a fund manager at Landesbank Berlin Investment, who oversees 10 billion euros ($13 billion) in assets, said in an e-mail yesterday. An early vote “would be a big burden for the issuance of government bonds and I see the market shut for Slovenia today at acceptable levels.”
The yield on Slovenia’s dollar-denominated benchmark bond maturing in 2022 rose to 5.3482 percent, the highest this year, on Feb. 27 when Jansa’s Cabinet was ousted. The yield has since dropped and was at 5.078 percent at 9:24 a.m. in Ljubljana, according to data compiled by Bloomberg.
The first post-communist nation to adopt the euro wants to avoid a bailout as its banking industry struggles with bad loans and unemployment rises during a recession sparked by the debt crisis.
Before Jansa joined the legion of leaders across Europe who were toppled by the waves of the economic crisis that started more than four years ago, his government drafted a 4 billion-euro ($5.2 billion) bank recapitalization plan that would take up bad loans from lenders.
Slovenia will probably have to apply for aid at some point to recapitalize its banks, Christoph Weil, an economist at Commerzbank AG in Frankfurt, wrote in a March 6 note to clients. Euro-region finance ministers would approve the aid request in return for a bailout program with tough conditions, he said.
“The bailout is the last step a government should take, so with all the delay, Slovenia has to avoid a deterioration that pushes the country into this solution with the lenders of last resort,” Landesbank’s Roehmeyer said.
Slovenia’s two largest banks owned by the state, Nova Ljubljanska Banka d.d. and Nova Kreditna Banka Maribor d.d., had a combined loss of 480 million euros in 2012 on surging loan-loss reserves.
The nation’s central bank, which sees gross domestic product shrinking further this year after a 2.3 percent drop in 2012, on March 5 urged the next Cabinet to recapitalize the banks and pull the economy out of a recession.
Slovenia faces a 2 percent decline in GDP this year, the European Commission said in a Feb. 22 report, and has to ratify neighboring Croatia’s bid to join the European Union on July 1.
There are “significant” policy differences between the parties comprising the coalition, particularly over the bad bank plan, said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London.
“Even if Bratusek gains the necessary votes to form a government, there are still many domestic and external pieces that need to fall into place for Slovenia to avoid going down the bailout route,” he said by e-mail yesterday. “The most likely scenario is that Bratusek gets the necessary votes and soldiers on as the leader of a weak and conflict-ridden government.”
Standard and Poor’s cut Slovenia’s credit rating on Feb. 13 one level to A-, on par with Poland and Malaysia, citing the government’s announced support for state-owned banks, which will lead to a higher debt ratio than previously forecast.
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