(Updates with Estonia in 10th paragraph, market reaction in 14th paragraph.)
Sept. 21 (Bloomberg) -- Slovenian President Danilo Turk urged leaders to settle squabbles that toppled the government of the first former communist euro-region member to avoid a delay in approving the European Union’s rescue fund amid a sovereign- debt crisis.
Lawmakers ousted Prime Minister Borut Pahor’s government yesterday in a confidence motion after two parties left over pension changes, with elections now likely to be held as early as December. The fall of the minority Cabinet may force a postponement of a vote to back the legislation enhancing the European Financial Stability Facility after EU leaders on July 21 agreed to upgrade the 440 billion-euro ($602 billion) fund, which needs unanimous backing in all 17 euro-area members.
“The political situation in Slovenia is serious and strained and demands responsible action from all political subjects,” Turk said in an e-mailed statement yesterday, noting he will cut short a visit to the U.S. “Now is the time for quick and well-thought action.”
Slovenia, along with other newer EU nations such as Slovakia, is showing little empathy for countries that aren’t adhering to the fiscal discipline they were forced to endure as part of becoming members in 2004. Slovenia’s Democratic Party, which opinion polls show is likely to emerge as the winner of an early election, is headed by Janez Jansa, who has said countries such as his shouldn’t have to fund nations like Greece.
“The government will work to ensure enough support for the EFSF in a vote in parliament,” the Finance Ministry said in an e-mailed statement today. “A rejection of the key instrument for financial stability of the euro region would be counterproductive as it would limit the effectiveness of the EU fund and would negatively impact Slovenia’s credibility in the international environment.”
A delay in Slovenia would slow the whole ratification process, since Slovakia, where one of the ruling parties, Freedom and Solidarity, opposes a more powerful EFSF, has already made it clear that it wants to be the last euro-region member to vote on the issue, Michal Dybula, an economist at BNP Paribas in Warsaw, wrote in a note to clients.
The European Commission said it is sure that Slovenia will ratify the upgrade of the euro area’s bailout fund even after the government’s defeat in a confidence vote yesterday.
“We do have full confidence in the democratic institutions of Slovenia to meet its obligations and fulfill its commitments,” commission spokeswoman Pia Ahrenkilde Hansen told reporters in Brussels today.
Slovak Premier Iveta Radicova has proposed linking a vote on the euro-bailout facility with a confidence motion on the Cabinet to boost chances the legislation, which is aimed at preventing the sovereign-debt crisis from engulfing countries such as Spain and Italy, will pass.
In Estonia today, the opposition Social Democrats said amendments to the facility can’t be passed without changes to the Baltic country’s budget law, potentially delaying ratification by a month.
Before the Slovenian confidence vote in Ljubljana yesterday, a parliamentary committee backed the legislation enhancing the EU rescue fund. Slovenian lawmakers may vote on it on Sept. 27 if they can agree on a session, said parliamentary spokeswoman Karmen Uglesic.
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 to put economic growth on a more solid footing.
Slovenia’s economy is now 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 forecast to expand 1.5 percent this year after a previous estimate of 1.8 percent, according to Finance Minister Franc Krizanic.
“The next administration should be more stable and sound even though much-needed reforms in Slovenia are difficult to implement,” Radivoj Pregelj, an analyst in Nova Gorica unit of the lender Abanka Vipa d.d., said by phone.
The benchmark SBITOP pared losses and rose for the first time in four days. The gauge of the six most-traded stocks advanced 0.1 percent to close at 610.72 points in Ljubljana.
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 313 basis points, or 3.13 percentage points after reaching a record 321 basis points on Sept. 14, from 147 basis points on June 6, according to Bloomberg data.
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.
Jansa’s Slovenia’s Democratic Party would win 27 percent of the vote compared with 15 percent for Pahor’s Social Democrats, according to a survey by Episcenter polling agency. The Sept. 3 survey of 802 people, published by Finance newspaper, gave no margin of error.
Jansa, a former premier, recently warned of an “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.
--With assistance from James G. Neuger in Brussels and Ott Ummelas in Tallinn. Editors: Alan Crosby, James M. Gomez
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