The European Central Bank threatened to take legal action against Slovenia yesterday (6 July) after police seized documents from the country’s central bank in a rare conflict between authorities and one of the eurozone’s most respected institutions.
ECB President Mario Draghi said he deplored the seizure, which infringes on the ECB’s legal privileges and immunities, and called on European Commission President Jean-Claude Juncker to intervene.
Slovenian police conducted an investigation in four locations in Ljubljana on Wednesday, including at the central bank, collecting evidence in a pre-criminal investigation related to possible irregularities during a bank overhaul in 2013.
The European Central Bank is interested in Slovenia applying for aid from the European Stability Mechanism (ESM), the eurozone's bailout mechanism, according to German business daily Handelsblatt.
“Seized equipment contains ECB information and such information is protected under directly applicable primary EU law,” Draghi said in a letter to the Slovenian State Prosecutor General. “The ECB will also explore possible appropriate legal remedies under Slovenian law.”
The ECB said police seized information on the computers of Bank of Slovenia Governor Bostjan Jazbec, who sits on the ECB’s rate-setting Governing Council, as well as a former deputy governor and some staff members.
Slovenian police said the investigation related to an assessment of one of the banks rescued by the state in 2013, which meant the bank could scrap its obligations towards holders of subordinated bonds and subordinated debt in the value of €257 million.
Slovenia appears to be on its way to becoming the sixth eurozone country to request an EU bailout as it seeks to prop up its struggling banking sector, including the country’s largest bank that is partly owned by Belgium’s KBC.
In 2013 the previous government had to pour more than €3 billion into local banks to prevent them from collapsing under a large amount of bad loans. The move helped the country narrowly avoid an international bailout.
Slovenia is expected to need as much as €5 billion to recapitalise its banks, according to sources familiar with the matter, a figure some officials claim would not require an international bailout.
As part of the bank overhaul about €600 million of subordinated bonds were scrapped in five banks.
In 2014, the Slovenian Association of Small Shareholders filed several court cases against the Bank of Slovenia and local banks, claiming the subordinated bonds and shareholders’ capital in rescued banks should not have been erased. None of the cases have been finished yet.
The Bank of Slovenia had repeatedly rejected allegations that it mishandled data used when putting together a rescue package for Slovenia’s banks.