Slovene government fails to seal political deal on fiscal reforms

By bne IntelliNews May 6, 2013

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Fighting to stave off an EU bailout, the Slovenian government was forced to postpone parliamentary sessions planned for May 6 and 7 that it hoped would win approval for fiscal reforms. The delay threatens a self-imposed deadline to submit its plans to Brussels, and dampens the optimism driven by last week's issue on the international markets.

Prime Minister Alenka Bratusek met with the leaders of opposition parties represented in the Slovenian parliament on May 5, but was unable to agree a deal to win the necessary levels of support to implement constitutional changes. She announced after the meeting that a parliamentary session on proposed changes to referendum rules, which was due to take place on May 6, has been postponed. Slovenia's ruling coalition has also proposed putting off a discussion on tax reforms which was scheduled for May 7.

The right-leaning opposition Slovenian Democratic Party, led by former prime minister Janez Jansa - who fell to accusations of corruption in February - has proposed reforms that would require Slovenia to balance its budget by 2015. However, the government says that is unrealistic, and proposes the deadline be moved back two years to 2017, AFP reports.

Bratusek's centre-left government, which took office on March 20, has pledged to submit its programme to deal with the country's banking crisis and growing budget deficit to EU officials by May 9. It's trying to avoid following Cyprus into asking Brussels for a rescue as it struggles to plug a growing budget deficit and recapitalise the country's leading banks, which are state owned but sagging under the weight of rising non-performing loans.

The Slovene banking sector alone is expected to need at least €1.2bn. The government needs to lick them into some sort of shape ahead of anticipated plans to privatise the major lenders. A plan to sell off the country's second-largest bank - Nova Kreditna Banka Maribor - is set to be announced by July. Ljubljana is also planning to set up a "bad bank" to hold the problem loans.

The failure to seal a political agreement on the reforms dampens the brighter mood in Slovenia following a May 2 sale of $3.5bn worth of dollar-denominated sovereign bonds. The government successfully pushed the issue through despite having scrapped it two days earlier in the wake of a two-notch Moody's downgrade to "junk". Investors reportedly placed orders for a total of $16bn, well up on the $12.5bn that was on the order book when it was closed two days earlier.

"The buffer, created from the April/May auctions provides solid relief until at least end-2013 - if we assume no T-bill rollover and gradual increase in bad banks' financing needs - or until [the end of the first quarter of 2014] if we take into account government deposits," Citi writes in an analyst note.

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