International

Slovenian PM wins confidence vote, but bailout risk remains

15 Nov 2013 - {{hitsCtrl.values.hits}}

Slovenia's government won a confidence vote on Thursday over its efforts to avert an international bailout, even as the imminent cost of a bank clean-up risks tipping the euro zone country's finances over the edge.

The 'Yes' vote in parliament, by 50 to 31, shores up political backing for Prime Minister Alenka Bratusek's disparate alliance as the republic struggles with its biggest crisis since it broke away from Yugoslavia 22 years ago.

But her government could yet have to turn to the European Union and International Monetary Fund for help if external stress tests reveal it has not budgeted enough to resolve the bad loan crisis afflicting Slovenia's mainly state-run banks.

The test results are due in a month.

Slovenia's 35-billion-euro economy accounts for only a small fraction of the 17-nation euro zone, but another bailout following that of Cyprus in March would further dent confidence in the bloc's ability to resolve its government debt crisis.

The government wants to raise taxes, cut spending and sell off more than a dozen state-controlled companies. It has linked Thursday's vote to amendments to the 2014 budget, which focus on taxes on real estate.

But Slovenia's success in averting an EU/IMF bailout - and the painful conditions and oversight that come with it - hinges on the cost of cleaning up an estimated 7.9 billion euros ($10.6 billion) of bad loans, equivalent to more than a fifth of economic output.

"The vote of confidence did not erase the possibility of a bailout which depends upon what stress test results will show," Marko Rozman from the treasury department of Dezelna Banka said.

"In my view it would be sensible to ask for external help as that would be much cheaper than raising money on the market," he added.

But Bratusek once again rejected bailout speculation.

"I promised to do everything to enable us (Slovenia) to solve our problems ourselves and that is exactly what we are doing," she told parliament after the vote.

COST OF BANK CLEAN-UP

Non-performing loans soared with the onset of the global financial crisis, when Slovenian exports, which are the main drive of the small economy, hit a wall.

The country, once held up as a trailblazer for the rest of ex-communist eastern Europe, fell into a new recession last year amid lower export demand, credit crunch and a fall of domestic spending caused by budget cuts.

The government plans to inject fresh capital into the banks later this year or in early 2014, after the results of the stress tests are published, probably on December 13.

It has earmarked 1.2 billion euros for the recapitalization, but the real cost may prove far higher. Credit rating agency Fitch last week hiked its estimate from 2.8 billion euros to 4.6 billion euros, which would be hard for the government to raise without help from the 'troika' of official lenders who have been bailing out euro zone debtors.

The audit has delayed for six months a plan to ring-fence bad loans at Slovenia's biggest state banks, while continuing economic contraction will have only made the problem worse. The government expects the recession to last until late 2014.

Under the amended budget, Slovenia's central budget deficit, without the bank recapitalization, would fall to 2.9 percent of GDP in 2014 from 4 percent seen this year. The European Commission, however, says that with the capital injection the shortfall could reach 7.1 percent next year.

The parliament also adopted a 2015 budget plan according to which central government deficit would fall to 2.5 percent of GDP in that year.

(Editing by Eric Walsh)

(Source : Reuters)

International

Slovenian PM wins confidence vote, but bailout risk remains

Most Popular Articles

Canadian boy dies of rabies after waking to bat on his face

Germany bans workers from calling in sick

Woman suspected of Monaco bombing found shot dead near Kyiv

Chinese tycoon sentenced to 30 years in US jail

Boy driving pickup truck crashes into group of Thai monks, killing 8

Couple transforms AC train coach into ‘honeymoon coupe’, Indian Railways takes action

Latest News

Navy seizes over 60,000 illegal sea cucumbers, arrests 26 in Mannar

Conjoined twins successfully separated at Peradeniya

CAA raids Colombo–Jaffna train restaurant over overpriced bottled water

GMOA warns of misleading social media post

2,498 qualify for South Korean jobs