Guy Norton in Zagreb -

Slovenian Premier Borut Pahor's political gamble on a vote of confidence in the National Assembly has backfired and left the EU facing yet another headache in its attempts to solve the mounting sovereign debt crisis.

After an ill-tempered eight-hour debate, 51 members of the parliament voted against Pahor on September 20, with just 36 expressing their support. Pahor had announced the confidence vote in August in a bid to engineer political support for much-needed economic reforms and had tied it in with the approval of five new ministerial appointees to his coalition government, which after the defection of two political parties controlled just 33 out of the 90 seats in the National Assembly.

Pahor's defeat almost certainly sets the stage for early elections, the first time that such an event has occurred since Slovenia won independence from Yugoslavia in 1991. Under the terms of the Slovenian constitution, President Danilo Turk must nominate a new prime ministerial candidate within the next week and parliament must vote that candidate into office within the next month or fresh elections must be held. With the right-wing opposition enjoying a clear lead in all the recent opinion polls, a snap election looks increasingly likely before the end of the year.

The local media in Slovenia has speculated that fresh elections could be held on December 4, the same day that voters in neighbouring Croatia go the polls. During the parliamentary debate, Pahor claimed improved relations with Croatia as one of his government's principal achievements since it came to power in September 2008. "When I came to the post of prime minister, the situation in the country was much worse than I expected. We were not prepared for recession, relations with our neighbours were disastrous. Slovenia today has a much better reputation than three years ago, relations with our neighbours have been significantly improved, especially with Croatia."

However, opposition leader Janez Jansa over Twitter compared Pahor's claims with the press briefings given by Iraqi information minister Mohammed Saeed al-Sahhaf, who proclaimed victory in a war with a US-led military coalition in 2003 just as American tanks were entering Baghdad.

However, Jansa, head of the main centre-right opposition Slovenian Democratic Party, which is riding high in the opinion polls, faces his own moment of truth in the near future, as he is currently on trial over allegations that he accepted a bribe from Finnish armaments manufacturer Patria in return for awarding them a $400m contract to supply the Slovenian army with armoured personnel carriers.

Bad timing

Michael Glazer, head of investment banking boutique Aucris in Croatia, says that the political vacuum in Slovenia comes at a highly inopportune time. "From a policy perspective, now is not a good time to have political uncertainty given the increasing economic challenges facing Europe and thus Slovenia's economic and political partners."

Pahor's defeat, for example, may cause a delay in parliamentary ratification for the European Financial Stability Facility, the proposed new EU rescue fund for debt-strapped Eurozone nations that must be ratified by all 17 members of the Eurozone. On September 21, President Turk was urging lawmakers to settle squabbles that toppled the government to avoid a delay in approving the rescue fund.

Meanwhile, Pahor had previously warned that Slovenia will need to rein in public spending, avoid excessive borrowing and improve the country's overall competitiveness if it to progress economically. Avoiding these measures, said Pahor, would be "very bad for Slovenia in the long term, and unsolvable in the short term without the help of other countries, which would mean that we are no longer the masters of our own fate."

Among the key challenges is trimming the country's budget deficit, which exceeds the 3% of GDP level allowed within the Eurozone. Pahor was looking to cut the fiscal gap to 3% in 2013, but that looks a stiff challenge given that currently the budgetary shortfall is set to hit 5.5% by the end of this year, versus the previously projected 4.8% level. There are also concerns on the debt front, with gross government debt having hit 45.2% of GDP by the end of the first quarter, up from 38.1% of GDP at the end of 2010.

On the microeconomic front as well, the picture is also pretty bleak. According to the Slovenian Agency for Public Legal Records and Related Services, in 2010 Slovenian businesses racked up €250m of net losses, versus €550m of net profits in 2009. Before Pahor came to power Slovenian corporates made €3bn of profits in 2007.