Bailout risk prompts Slovenia opposition rethink

Reuters News
Posted: Sep 19, 2012 9:40 AM
Bailout risk prompts Slovenia opposition rethink

By Marja Novak

LJUBLJANA (Reuters) - Opposition parties and unions in ex-communist Slovenia are edging closer to backing the government on radical reforms needed to save the country from joining the euro zone bailout queue.

Political leaders and an official of the country's largest union have told Reuters they are prepared to negotiate with the government on proposals similar to those the unions rejected last year, such as raising the retirement age.

"We are moderate optimists regarding the possibility that an agreement on the pension reform will be reached," said Pavle Vrhovec, the executive secretary of the largest union, ZSSS, which sponsored a referendum last year that rejected the pension reform.

"Cooperation with this government seems better than with the previous one. The government and the labor ministry are listening to our opinions and trying to acknowledge them," he added.

But with Slovenian banks, mostly state-owned, nursing 6.4 billion euros of bad loans, many believe reforms may come too late for Slovenia to avoid becoming the sixth of the euro zone's 17 nations to seek financial help of the bloc's stronger economies, either for banks or the sovereign itself..

Finance Minister Janez Sustersic said last week Slovenia must provide up to 4 billion euros, or about 11 percent of its GDP, in state guarantees to support its banks - and bad loans are still on the rise as recession persists.

The European Central Bank's offer earlier this month to buy unlimited amounts of bonds from countries that submit to a reform plan has partly restored investor confidence.

That might allow Slovenia to keep its banks afloat and raise funding in the financial markets if politicians and unions refrain from using Slovenia's referendum mechanism to block money-saving changes, such as cuts in unemployment benefit.

Reform plans include raising the retirement age to 65, making it easier to hire and fire employees, setting up an agency that would take over the bad debts of state banks and speeding up the sale of state assets.

These plans could gain the support of the largest opposition party, the center-left Positive Slovenia.

"We do not reject (pension and labor) reform solutions presented so far ... and we hope negotiations on its contents which are ongoing will succeed," Positive Slovenia said in a statement prepared for Reuters.

The center-left opposition Social Democrats also say they are prepared to compromise.

"We support the reforms on principle. We wish the government will consider what was agreed already and upgrade that. In that direction we will support everything that would be good for Slovenia," said the party's leader Igor Luksic.

The conservative government led by Janez Jansa has so far insisted that no bailout would be needed and it remains unclear if Slovenia might need money to cover the bad loans of its banks, finance budget spending or service state debt.

But heightened alarm in financial markets about bigger euro debtors could easily stampede Slovenia into seeking help.


Bailout or not, recession has led many to think Slovenia must tackle a public sector that retained all the perks from Slovenia's socialist past when it joined the euro zone in 2007.

At first, Slovenians enjoyed an economic boom driven by exports and cheap credit.

But since the global crisis struck and the euro bloc's debt problems became evident, "living standards have deteriorated a lot ... There are no jobs and it is practically impossible to get a bank loan to start a business," said Boris Pecaric, a 51-year-old mechanical engineer.

He has lived on welfare payments since November, when he was forced to quit his job at a troubled transport company after receiving little or none of his wages for months.

Unemployment is now close to 12 percent, almost double the rate in September 2008, just before crisis took hold.

Even now, most analysts believe the country must stick with the euro, particularly since it exports about 70 percent of its output, mainly to other euro zone states.

And sharing a currency means Slovenia can only hope to boost its economy by reform in areas where it has more control, such as government spending and labor laws.

Pension and labor reforms drafted by the former center-left cabinet last year were rejected at referendums forced by trade and students' unions. This led to the government's fall.

Its successor, Jansa's cabinet, also wavered in the face of union threats in May and shelved some budget cut plans.

Now the ruling coalition, which holds 48 out of 90 seats in parliament, hopes to rally the necessary two-thirds support and change the constitution in order to prevent future referendums on issues such as the budget, human rights and defense.

At present, 30 parliament deputies or anyone who collects 40,000 signatures can force a referendum on any issue. Cross-party talks on changing these rules started last week.

"An agreement on reforms is more likely than last year because everyone is afraid, the water is already up to (Slovenia's) neck," said Mojmir Mrak, a professor at Ljubljana's Faculty of Economy.

Slovenia cut most public sector wages by 3 percent from July and reduced most social benefits but the total wage bill for some 161,800 public sector employees is still about 5.3 percent higher than before the onset of the global crisis in 2008.

"The planned reforms are not enough. Some are a step in the right direction but the country is ripe for a bailout," said Andrej Martelj, head of a prosperous middle-sized software company, Datalab.

"Virtually all decisions the politicians have made over the past four years have led to bigger budget spending. I see no more reserves," he added.

(Editing by Zoran Radosavljevic and Ruth Pitchford)