Slovenia scrambles to avert bailout
Slovenian efforts to avert another eurozone bail-out have been boosted by a successful bond auction but a gloomy economic forecast and credit rating downgrade maintained pressure on the new government to draw up a convincing action plan for EU officials and financial markets.
After only six weeks in power, Prime Minister Alenka Bratusek must send to Brussels next week a clear plan and a timeframe to ensure the recovery of the country’s shaky banking system, stabilise its public finances and jumpstart the economy despite a deep recession.
This task became more difficult when Moody’s downgraded Slovenia’s credit rating by two notches to “junk” status last week while warning that the chances of an international bailout had increased significantly.
In April, the European Commission said that Slovenia posed one of the biggest economic risks in the eurozone, and on Friday a new Commission forecast for the country estimated that its economy would contract by 2.0 per cent this year and by 0.1 per cent next year.
EU Economic Affairs Commissioner Olli Rehn has urged Bratusek to pursue reforms adopted by the previous government and introduce new measures, and this is the action plan expected by May 9, Bratusek has said.
It is to include measures to fix the banking sector and cut spending while stimulating the economy, in recession since 2011.
Despite the gloom, Slovenia raised 3.5 billion dollars (US$27.15 billion) in a successful bond sale two days after the Moody’s downgrade, with demand exceeding 16 billion euros (HK$162.79 billion), the finance ministry said on Friday.
Many accuse Bratusek of recycling measures presented by the previous government before it collapsed in February amid corruption claims against prime minister Janez Jansa, however.
The new action plan is “still much more Jansa’s than Bratusek’s programme,” Ljubljana University economy professor Maks Tajnikar told AFP, although some “compromises” made the new plan more realistic regarding the banks.
“It is still an austerity programme, which I believe is suicidal, but Bratusek obviously does not dare to make a shift just as Europe does not,” Tajnikar added.
The plan calls for more cuts in public sector wages, measures to better regulate the labour market, an increase in the value-added tax or the introduction of a temporary “crisis tax,” which would affect all citizens with revenues in the country of two million euros (HK$20.35 million).
The government also plans to privatise state-owned companies, including a bank, by the end of the year, while a “bad bank” is to start taking on toxic assets from commercial lenders by June.
To show its resolve, the government is also mulling a balanced budget requirement in its constitution, and restricting the use of referendums that have blocked much-needed reforms in recent years.
But the measures will not work, said Branimir Strukelj, head of one of the main public sector unions.
“There are many phrases we’ve already heard hundreds of times but there is no serious answer to how we will come out of the crisis,” he maintained.
Bratusek defended the new measures, explaining in an interview with the weekly Mladina: “Our government is operating in the same financial environment as the previous one and we can spend only as much as we make.”
Her government also hopes to reduce the deficit this year.
It dismisses the former government’s “unrealistic” deficit forecast of 2.8 per cent of gross domestic product (GDP) for this year, that could in fact reach 5.0 per cent.
Despite doomsday predictions that Slovenia could soon need a bailout, the government insists that the situation will not unravel that far.
In another bit of good news on Thursday, Standard & Poor’s assigned an investment grade A- rating to Slovenia’s five- and 10-year bonds, and strong demand at the latest bond auction “proved the credibility of the government’s reform programme,” the finance ministry claimed.
In addition, unemployment is below the EU average, national debt is among the lowest in the 27-member EU and growth does not depend entirely on the troubled banking sector, Bratusek wrote in the Wall Street Journal last month.
“Slovenia is not Cyprus, nor any other EU economy for that matter. The comparisons... are dead wrong and ignore economic fundamentals,” she said.