Slovenian Premier Survives Budget Vote as EU Backs Plan

Slovenian Prime Minister Alenka Bratusek survived a confidence vote tied to the 2014 budget that the European Union said is on track to deliver targets aimed at averting a bailout.

Lawmakers in the capital, Ljubljana, voted 50-31 today to endorse the government’s spending plan for 2014 and 2015. Slovenia has taken “effective” action on its fiscal deficit this year and needs to “rigorously” implement next year’s plan, the European Commission, the EU’s executive, said today in its first-ever evaluation of national budgets.

Slovenia, a euro-region member since 2007, is seeking to avoid resorting to a bailout to prop up a banking industry saddled with 8 billion euros ($10.8 billion) of bad loans, or more than a fifth of economic output. The country has delayed a bank rescue plan, which Fitch Ratings estimates will cost almost four times as much as the government has set aside.

“I have promised to do everything to solve our problems by ourselves,” Bratusek said in a statement on the government’s website today after the vote. Bratusek said she was “very optimistic” on the assessment of the draft budget and the measures to correct the excessive deficit from the commission before its report.

The yield on Slovenia’s dollar-denominated bonds maturing in 2022 declined 23 basis points, or 0.23 percentage point, from yesterday to 5.91 percent at 4:28 p.m. in Ljubljana, the lowest level on a closing basis since May 30, data compiled by Bloomberg showed.

Bond Sale

Slovenia sold 1.5 billion euros of bonds in a private placement, skirting scrutiny on the open market before stress tests reveal how much it must pay to bail out the mostly state-owned banking system next month. It sold the three-year notes at 465 basis points, or 4.65 percentage points, above similar maturity German bunds, data compiled by Bloomberg show.

Slovenia has set aside 1.2 billion euros for the bank rescue, while Fitch estimates the cost will be 4.6 billion euros. The government delayed a capital injection and the planned shift of failing loans to a bad bank after the EU demanded and external audit of the lenders.

The original plan to start swapping bad loans in exchange for government-guaranteed bonds was set for June. The transfers will start after the results of an asset quality review and bank stress test are published in December.

Budget Shortfall

The budget plan through 2015 “appears broadly plausible” while risks to growth and domestic demand in particular “are related to the financing conditions for the overall economy, which in turn hinge upon the speed of the ongoing deleveraging process and the implementation of the needed bold structural reforms,” the commission said in its report today.

Bratusek’s government plans to narrow the budget shortfall to 2.9 percent of gross domestic product next year, according to the statement on its website. Finance Minister Uros Cufer has said the gap will be 3.3 percent in 2014 as measured by EU standards, excluding the bank rescue cost.

Including the cost of the bank rescue, the deficit will widen to 7.1 percent of GDP next year from an estimated 5.8 percent in 2013 and 3.8 percent at the end of last year, the commission said Nov. 5.

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