A court ruling will force Slovenia to pay back hundreds of millions of euros to depositors in its biggest bank, putting additional strain on the country after it rescued its lenders to avoid an international bailout last year.
In a binding ruling, the European Court of Human Rights said yesterday that Slovenia has one year to make deposits available with interest to Bosnian, Croatian and other savers who had as much as 300 million euros ($405 million) in a predecessor to state-owned Nova Ljubljanska Banka d.d. Slovenia cut off the foreign savers’ access to their deposits when it broke away from the former Yugoslavia more than two decades ago.
“Slovenia must make all necessary arrangements, including legislative amendments, within one year,” the court said in the ruling. It must allow the plaintiffs “and all others in their position to recover their ‘old’ currency savings under the same conditions as those who had such savings in domestic branches of Slovenian banks.”
The Alpine euro member paid 3.2 billion euros last year to rescue its banks and avoid an international bailout similar to fellow euro members Greece and Cyprus. The move drove the budget deficit to 15 percent of annual output - five times the European Union limit - less than a year after it emerged from its longest-ever recession.
The banking rescue also helped fuel a political crisis when outgoing Prime Minister Alenka Bratusek’s former Positive Slovenia party ousted her as its leader amid opposition to her plan to sell state companies to help shore up the budget. Her dismissal triggered early elections, won this week by political newcomer Miro Cerar, who has said Slovenia should reconsider the privatization plans.
Slovenia will need to provide a “significant” amount of money to cover the payouts and will have to find additional funds to do so, central bank Vice Governor Stanislava Zadravec Caprirolo told reporters in Ljubljana today.
The total cost to Slovenia could be “as much as half-a-billion euros,” according to Milivoje Zugic, Zagreb-based lawyer who has defended hundreds of savers from Croatia and Bosnia-Herzegovina.
“The most important thing is that the court recognized that all savers need to be treated the same way as those who had savings in domestic branches of the Slovenian bank, which means that they have the right to be paid out, with interest,” Zugic said by phone.
The new government, which election winner Miro Cerar expects to be formed by mid-September, will have to break an election promise by raising taxes or cut public wages, Matjaz Music, head of economic research at Hypo Alpe-Adria Bank d.d.
“The ruling is definitely unfavorable for Slovenia,” Music said in an e-mail. “The effect of the ruling for the 2015 and 2016 budgets could be as much as 1.5 percent of GDP of additional gap, which we see at about 6 percent for end-2014.”
The court said the deposits, which have been withheld for more than 20 years, should be subject to a default interest rate of 3 percentage points above the European Central Bank’s marginal lending rate, the Strasbourg-based court said.
Croatian savers alone are claiming about 150 million euros in deposits, without interest, Croatian Foreign Minister Vesna Pusic said yesterday.
While the ruling only affects individual savers, it may have “indirect repercussions” for another estimated 300 million euros of deposits which some Croatian savers transferred to the Croatian state in the 1990s, Pusic said.
Slovenia’s Finance Ministry declined to estimate exactly how much the country would have to make available to the depositors, spokeswoman Irena Ferkulj said.
Slovenia maintains the issue of old foreign-currency savings was part of a succession settlement among countries that emerged out of former Yugoslavia. Savings at branches of Ljubljanska Banka, a predecessor of NLB, were guaranteed by the federal government and after the breakup of Yugoslavia were no longer available to savers from outside Slovenia.
Upholding an earlier verdict, the court ruled the deposits were private property and depositors were prevented from their “peaceful enjoyment.” The court also lowered a similar verdict involving Yugoslav-era savers of Serbia’s Investbanka.
“The verdict is just,” Croatian Prime Minister Zoran Milanovic told reporters in Brussels yesterday. “Slovenia has an obligation to allow people to enjoy their property,” he said.
For its part, Slovenia will probably be forced to sue Croatia and Bosnia to recoup as much as 1.3 billion euros that Croat and Bosnian companies owe to LB, newspaper Dnevnik cited Rudi Gabrovec, Slovenia’s chief negotiator in succession talks, as saying.