Slovenia Replaces Premier Amid Battle to Avoid BailoutJasmina Kuzmanovic and Gordana Filipovic
Slovenian lawmakers elected Alenka Bratusek to replace Prime Minister Janez Jansa to quell a political crisis as the Alpine nation battles a recession and the threat of becoming the sixth euro member to need a bailout.
Parliament in Ljubljana voted late yesterday 55-33 in favor of ousting Jansa, whose coalition government crumbled after he was accused of corruption, and appointed Bratusek as the country’s first female premier. Bratusek, 42, has 14 days to have a Cabinet approved or early elections will be called.
“Now the focus is whether she can form a working majority,” said Tim Ash, chief emerging-markets strategist at Standard Bank Plc in London. “It’s going to be difficult” as she will have to convince other parties “that she is pro-reform and has a clear plan on bank reform.”
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. Jansa joins the legion of leaders across Europe who were toppled by the waves of the economic crisis that started more than four years ago. Bulgarian Premier Boyko Borissov stepped down Feb. 19 after violent street protests.
The main stock market index SBITOP gained 2.56 percent to 620.78 points by 10:11 a.m. in Ljubljana, its biggest increase since Jan. 4, according to data compiled by Bloomberg.
The yield on Slovenia’s dollar-denominated bonds maturing in 2022 dropped to 5.263 percent as of 11:05 a.m. in Ljubljana from 5.322 percent yesterday. The cost of insuring the debt with five-year credit-default swaps, which rise as perceptions of creditworthiness worsen, narrowed by half-point to 259.67.
Slovenia plunged into political uncertainty after the anti-corruption agency accused Jansa of failing to declare all his private assets, prompting his coalition partners to demand his resignation and increasing the prospect of an early vote. Regular elections are planned for 2015. Jansa has denied the allegations of wrong-doing.
Bratusek’s nomination as caretaker prime minister doesn’t ensure the crisis will end. Citizens’ List party leader Gregor Virant said in a letter published on his party’s website Feb. 22 that his party may opt for early elections since the proposed scenario of a caretaker government and its program “are not good.”
Bratusek, who for six years led the Finance Ministry’s division for the state budget, told Parliament the priorities of a temporary government would be balancing public finances after the deficit reached almost a quarter of the full-year target of 1 billion euros ($1.3 billion) in January and strengthening the public sector’s role as “a driver” of economic growth.
The Adriatic nation that was the first post-communist country to adopt the euro, needs to continue efforts to fix its ailing banks. Slovenia faces a 2 percent decline in gross domestic product 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.
Jansa’s government drafted a 4 billion-euro bank recapitalization plan that would take up bad loans from lenders.
“The least bad outcome from the market’s point of view might actually be early elections, even if the knee-jerk reaction is likely to be negative,” said Abbas Ameli-Renani, a strategist at Royal Bank of Scotland Plc in London. “A pre-election coalition around Bratusek would likely just prolong political uncertainty in Slovenia as the coalition is unlikely to last more than a year.”
Slovenia’s economic contraction continued in the fourth quarter as exports to Europe eased and consumption slumped because of the government’s austerity drive. Gross domestic product fell 3 percent from a year earlier after a 3.3 percent drop in the July-September period, the statistics office in Ljubljana said today.
The banking industry, struggling under the burden of bad loans, reported a pretax loss of 664 million euros for 2012, according to central bank data.
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.
Slovenia’s public debt rose to about 48 percent of GDP last year from 16 percent in 2008, a year after the former Yugoslav nation adopted the euro. Government support of the state-controlled banks at the level likely to be needed will increase the debt ratio to 59 percent at the end of 2013, S&P said.
“Slovenia is stuck in a very difficult situation, from which a snap election is not really a workable outcome,” Petr Grishin, chief economist at VTB Capital in Moscow, said by e-mail. “For the bond market, a clear positive would be if a new government at least picks up the sovereign holding and bad banks projects at the speed of Jansa’s extinct Cabinet, but this is hardly possible in this political landscape.”