Slovenia's budget talks delay planned Eurobond test

By bne IntelliNews April 10, 2012

Guy Norton in Zagreb -

Plans by Slovenia to test sentiment in the international debt market towards the country remain on hold as the recently installed centre-right government continues to thrash out a new social compact with employers and trade union leaders as part of a revised budget for 2012.

Several rounds of negotiations held by the Economic and Social Council, the country's principal industrial relations forum, have so far failed to result in any broad-based agreement on the government's budget proposals, which have yet to receive approval by the National Assembly, Slovenia's parliament.

Earlier in April, BNP Paribas, HSBC, JP Morgan, Societe Generale and UniCredit Group arranged a series of investor meetings throughout Europe to test the waters for a €1.5bn bond transaction that is likely to be the first of two major overseas debt financings from this year. But while Slovenian finance officials were abroad courting foreign investors, there were feverish talks at home as the new administration, which came to power in February, has been seeking to reach a much-needed agreement with social partners on a proposed package of austerity measures. The government is targeting spending cuts of over €1.1bn this year as part of an attempt to slash the country's budget deficit from 6.4% of GDP at end-2011 to a much more manageable 3% of GDP in 2013.

Much of the increase in the budget deficit in 2011 came from the growing cost of bailing out cash-strapped state-owned companies, including €243m to recapitalise Nova Ljubljanska Banka (NLB), €119m finance the debts of rail company Slovenske Zeleznice and €49m in aid for flag carrier Adria Airways. Altogether, state aid to government controlled firms last year cost the equivalent of 1.3% of GDP.

The proposed spending cuts by the new administration, which include a headline-grabbing across-the-board 15% for public servants, have inevitably raised the hackles of trade unionists, with Branimir Strukelj, head of the KSJS trade union which claims to represent around 74,000 or about half of the country's public sector employees, telling Slovenian news agency STA: "This is the beginning of the disintegration of the welfare state."

Strukelj also strongly objects to the government's demonisation of the public sector as social parasites and stresses its contribution to society. "We teach, we heal, we nurture, we protect, we make sure that the country works."

Strike one

The KSJS trade union has led calls for a general strike on April 18 to protest the budgetary proposals, which in addition to the planned wage cuts wage will also include reductions in the length of entitlement to unemployment benefits and the scrapping or slashing of a range of subsidies to pensioners and students. The planned cuts have also incurred the wrath of private sector unions as well, with the Slovenia's Independent Union Association (ZSSS) threatening to call a referendum to oppose them. ZSSS chief Dusan Semolic told STA that the plan to more than halve the country's budget in the next 12 months "is an excessively cruel measure."

The austerity measures have also come under fire from opposition parties in Slovenia who believe they are too radical and risk damaging the hitherto generally amicable labour relations in the country. Zoran Jankovic, head of the opposition Positive Slovenia, who was recently reelected as mayor of the Slovene capital Ljubljana, says that the planned wage cuts would impact the poorest members of society first and foremost, and proposed instead that the authorities in Ljubljana increase VAT by 1-2 percentage points, which could potentially add €300m to the government's coffers.

Jankovic has also criticized the proposed scrapping of some major infrastructure investments such as the construction of a second rail line between Koper port and Divaca, the building of a third pier at the port of Koper and a hydro plant on the Sava river. "These investments are worth €11bn and they will enable us to employ some of the 116,000 people who are currently jobless," he told STA.

Meanwhile, Finance Minister Janez Sustersic says that the government has already begun exploratory talks with potential buyers of part of the government's stake in NLB, the country's leading lender. The state currently owns 55% of the bank, which under European Banking Authority (EBA) rules needs to raise €400m by the end of June in order to raise its Tier 1 capital adequacy ratio above the minimum 9% required by Eurozone financial regulators. The authorities in Ljubljana are said to be looking to sell at least half of their current holding in the next few months and are also reported to be lobbying the EBA to extend the deadline for NLB's capital hike so as to ease the path for any sale.

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