Slovenia approves huge budget deficit hike to support bank rescue

By bne IntelliNews July 12, 2013

bne -

The Slovenian parliament on July 11 voted in favour of a revised 2013 budget that will almost double the deficit, as the government seeks to finance its delayed rescue package for the country's banks.

The lower house passed the revised budget with a general deficit target raised to 7.9% of GDP, up from just 4.2% in 2012. The central government's deficit for the year will be 4.4% - almost twice the 2.8% target set by the previous government.

Speaking ahead of the vote, Prime Minister Alenka Bratusek - who came to power in March after her predecessor was felled by a corruption scandal - said that the budget cuts proposed by the previous government were "unrealistic". The fiscal consolidation plans of Janez Jansa's centre-right cabinet had provoked months of protest before it fell.

Seeking to avoid an international bailout, Jansa cut public sector wages and social benefits to squeeze the 2012 budget deficit to 4.2% - following a 6.4% gap the previous year. It then planned further budget cuts for this year with the aim of reducing the deficit to below the Eurozone's 3% threshold.

"We had to revise the budget because the plan of the previous government was entirely, truly entirely unrealistic and because the conditions in the Slovenian economy have unfortunately worsened," Bratusek told MPs, according to Reuters.

At the same time, Ljubljana needs cash to fuel its struggle to rescue the country's - mostly state-owned - banking sector, which is sinking under a huge volume of bad loans. Again, it insists it can cope without resorting to trying to raise a loan from the European Union or the International Monetary Fund, although its plans are behind schedule.

Officials reiterated this week that they intend to finance the bank bailout themselves. Speaking after meetings with EU officials in Brussels, Finance Minister Uros Cufer said Ljubljana will avoid asking for help as it wants to "to clean up the mess we did ourselves with our own funds", Slovenska Tiskovna Agencija reports. "Slovenia can afford to do the cleaning ourselves," Cufer added.

Bratusek repeated the mantra. "I am still confident that we will manage to solve our problems ourselves without foreign help," she told parliament ahead of the vote. The government plans a direct capital boost of €1.2bn for banks including Nova Ljubljanska Banka and Nova Kreditna Banka Maribor.

The government has already set up a "bad bank" to take on the banks' bad loans, but the transfer of toxic assets - in return for €1.1bn in government-backed bonds - has been delayed by disagreements with the EU over pricing of the transfers, according to Cufer. Bratusek had earlier announced the first transfers would go through by July 2 at the latest.

The European Commission has called for external audits of the country's largest banks before the bailout programme kicks off. Nova KBM, announced July 10 that it will start stress tests before the end of July.

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