Bloomberg News

Slovenian Government Toppled in Vote, May Delay EU Rescue Plan

September 20, 2011

Sept. 20 (Bloomberg) -- Slovenia’s government lost a confidence vote, plunging the first former communist euro-region member into turmoil that may delay the approval of the European Union’s rescue fund amid a sovereign-debt crisis.

Lawmakers in Ljubljana voted 51-36 today to topple Prime Minister Borut Pahor’s administration, according to parliament’s press service. General elections are likely to be held as early as December, which may force a postponement of a vote to back the legislation enhancing the EU rescue fund, known as the European Financial Stability Facility.

“An eventual delay in Slovenia would slow the whole ratification process, since Slovakia, where one of the ruling parties opposes a more powerful EFSF, has already made it clear that it wants to be the last eurozone member to vote on the issue,” Michal Dybula, an economist at BNP Paribas in Warsaw, wrote in a note to clients today.

Slovenia, along with other newer EU nations such as Slovakia, are showing little empathy for countries that aren’t showing the fiscal discipline they were forced to endure as part of becoming members in 2004.

Slovak Premier Iveta Radicova has proposed linking a vote on the euro bailout facility with a confidence motion on the Cabinet to boost the chances the legislation will pass and deal with the continent’s debt crisis, Finance Minister Ivan Miklos said today.

Discontent

The head of Freedom and Solidarity, one of the four ruling Slovak parties, says party lawmakers will reject the overhaul of the bailout fund. Radicova needs the party’s votes to push through the overhaul of the EFSF, the temporary bailout fund designed by EU leaders. A failure to approve the package in Slovakia, the euro-area’s second-poorest member, may delay euro- area approval of the plan to prevent the sovereign debt crisis from engulfing countries such as Spain and Italy.

Slovenia’s economy is losing momentum with export demand in Europe weakening. Gross domestic product expanded 0.9 percent in the second quarter on the year from 2.3 percent in the previous three-month period. The economy is now forecast to expand 1.5 percent this year after a previous estimate of 1.8 percent, according to Finance Minister Franc Krizanic.

Pahor’s administration took power at the end of 2008 as the global financial crisis started to take its toll on the world economy. Slovenia’s export-dependent economy was among the hardest hit in the 2009 recession and the government has struggled ever since to put economic growth on a more solid footing.

Failure

“Key reforms have failed to materialize under this government, including the pension changes and labor-market overhaul,” Radivoj Pregelj, an analyst at Nova Gorica-based Abanka Vipa d.d., said in a phone interview. “The next administration should be more stable and sound even though much- needed reforms in Slovenia are difficult to implement.”

The extra yield investors demand to hold Slovenia’s bonds maturing in 2021 rather than similar-maturity German debt more than doubled since the pension changes were rejected in June. The difference rose to 305 basis points, or 3.05 percentage points, in Ljubljana at 3:47 p.m. from 147 basis points on June 6, according to Bloomberg data.

Political uncertainty pushed the SBITOP, Slovenia’s benchmark index of six most-traded stocks, to slide for a third consecutive session. The index declined 0.2 percent to 609.90 points at 3:47 p.m. in Ljubljana.

Early Elections

Early elections in Slovenia are not a straightforward matter. In the case of a no-confidence vote, lawmakers have a period of 30 days to propose another possible leader who may assemble a majority in the legislature. If that person fails, the president dissolves the parliament.

“The probability of a new interim leader emerging is very slim and the early vote option is the most likely outcome,” Ali Zerdin, a political analyst and editor at Delo newspaper in Ljubljana, said in an e-mail.

Janez Jansa, a former premier and the leader of Slovenia’s Democratic Party, is likely to emerge as the winner of an early vote, according to a survey by Episcenter polling agency. Jansa’s group would win 27 percent of the vote compared with 15 percent for Pahor’s Social Democrats, according to the Sept. 3 survey of 802 people and published by Finance newspaper. No margin of error was given.

Jansa recently warned of “‘uncontrolled increase” of debt by the current administration and on May 7 said on his party’s website that financial assistance to Greece from countries such as Slovenia “isn’t fair” because Greek workers have higher salaries.

“The ruling coalition is thus creating a fiscally dramatic situation for the next government, which will have to set aside 10 percent of the budget a year just for interest payment,” Jansa wrote on his Facebook page on Sept. 19. His office confirmed the posting to Bloomberg News.

In 2008, Slovenia was allocating 2 percent of the budget for interest payments, according to Jansa.

--Editors: Alan Crosby, James M. Gomez, Andrea Dudik.

To contact the reporter on this story: Boris Cerni in Ljubljana at bcerni@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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