Slovenia self-inflicts austerity plan to avoid bailout

Alenka Bratušek

Slovenia pledged on Thursday (9 May) to sell 15 state firms including its second largest bank, biggest telecoms operator and national airline under a crisis package to avert an international bailout.

The much-anticipated package offered no timeframe for the sell-off of state firms and said cuts to the public sector wage bill would have to await the outcome of negotiations with unions.

Buoyed by exports of Renault cars, household appliances and pharmaceuticals, successive governments shied away from the unpopular sale of state assets, including the country's biggest banks, and reform of the welfare system and rigid labour market.

Exports hit a wall with the onset of the global crisis, driving up bad loans, borrowing costs and exposing widespread cronyism and corruption that saw disastrous loans made to politically-connected businessmen.

Prime Minister Alenka Bratušek said the package, which includes a rise in value added tax from 1 July to 22% from 20%, would be enough to prevent the country following Cyprus in the eurozone queue for a bailout from the European Union and International Monetary Fund.

The plan is go to the European Commission, the EU's executive arm, on Friday.

"This programme will enable Slovenia to remain a completely sovereign state," Bratušek told a news conference. Her finance minister, Uroš ?ufer, said: "Slovenia is a plane losing altitude and we first have to stabilise that altitude."

The EU is growing increasingly nervous over Slovenia's commitment to the overhaul the EU says is needed to an economy roughly 50% controlled by the state and shackled with €7 billion of bad loans in local banks.

Cautious reaction

"If all the measures are also put into practice and not just written down, I believe we are still in a position to solve the problem ourselves," Slovenian Central Bank governor Marko Kranjec, a member of the European Central Bank's governing council, told Austria's ÖRF television.

Sašo Stanovnik, lead economist at investment firm Alta Invest, said the plan might buy time, but was not a "permanent solution".

"The biggest problem of this programme is that it does not put enough emphasis on cutting costs," he told Reuters. "The privatisation announcement is a positive surprise, but because of past experience we're sceptical that Slovenia will indeed sell these firms."

The country bought breathing space last week when it managed to issue two bonds with a total value of €2.7 billion, but will have to tap markets again no later than the first quarter of 2014 before a 5-year €1.5 billion bond matures on 2 April.

A spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn said the Commission would study the plan and offer its response on 29 May.

Background

Estimates suggest a bailout for Slovenia, which joined the EU in 2004 and the eurozone in 2007, could run to €5 billion, mostly for shoring up its banks. Although small by the standards of Greece or Ireland, a bailout would be politically awkward when the eurozone is also wrestling with financial woes in Spain, Italy, Portugal and Cyprus.

A bailout would tough on Slovenia, forcing the government to make more spending and job cuts, but under international supervision.