EU agrees to Slovenia taking until 2015 to bring budget gap below 3%

By bne IntelliNews May 30, 2013

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The EU on May 29 granted financially troubled Slovenia another two years to bring its government budget into line with the EU norm of 3% of GDP. At the same time, it proposed Ljubljana step up privatisation and carry out an independent review of its banking sector as measures to avoid becoming the next Eurozone state to require an international bailout.

"Granting two additional years for the correction of the excessive deficit would be commensurate with intermediate headline deficit targets of 4.9% of (gross domestic product) for 2013... 3.3% of GDP for 2014 and 2.5% of GDP for 2015," the European Commission said in its annual review and recommendations on the fiscal policies of each member nation.

Slovenia's budget deficit hit around 8% of GDP last year, driven up largely by government spending to shore up its crumbling, mostly state-owned banking sector. The country's banks are the epicentre of the country's economic problems as the sector struggles to deal with bad loans worth over about 20% of annual GDP. The economy is back in recession, with the country's antiquate labour regulations and addiction to state intervention seen as particular problems.

The government unveiled on May 9 a far-reaching reform programme that aims to restructure the ailing banks, sell 15 state-controlled companies - including a bank, an airline and the country's main telecommunications company - cut spending by €716.5m, and raise extra revenue to the tune of €650m.

The Commission praised the government's privatisation drive, but urged it to step up its efforts, as well as subject its troubled state-owned banks to an outside and independent auditor. The worry is that the state's figures do not accurately measure the seriousness of the banking sector's problems. However, the central bank governor, Marko Kranjec, said he is "confident" that any independent review would show the Bank of Slovenia's estimates of bad loans in local banks were accurate, which show they are nursing some €7bn of bad loans, equal to 20% of GDP.

Kranjec also warned that hiring external advisers to review the banks could delay plans to move bad loans to a newly established bad bank. "In spite of that, I hope the first transfer of loans to the bad bank will be made at the end of June," Kranjec said in an interview for the local Top TV channel.

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