Slovenia mandates new PM to halt dramatic decline

LJUBLJANA Wed Feb 27, 2013 5:24pm EST

Slovenia's Prime Minister Janez Jansa speaks during a session in parliament in Ljubljana February 27, 2013. REUTERS/Srdjan Zivulovic

Slovenia's Prime Minister Janez Jansa speaks during a session in parliament in Ljubljana February 27, 2013.

Credit: Reuters/Srdjan Zivulovic

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LJUBLJANA (Reuters) - Slovenia dismissed its conservative-led government on Wednesday and offered a center-left finance expert the task of halting the Alpine country's fall from post-communist star to euro zone bailout candidate.

The 90-seat parliament voted 55-33 to dismiss Prime Minister Janez Jansa's ruling coalition after just a year of trying to navigate through the ex-Yugoslav republic's worst economic and political crisis in 22 years of independence.

The baton passed to opposition Positive Slovenia leader Alenka Bratusek, who will become the country's first female prime minister if she manages to build a coalition around a platform to stabilize its finances and avoid going cap-in-hand to the European Union.

"Today marks a watershed moment for Slovenia," 42-year-old Bratusek told reporters after the vote.

A member of the EU since 2004, the country of 2 million people has gone from economic trailblazer for the rest of eastern Europe when it joined the euro zone in 2007 to the latest ailing member of the 17-nation currency bloc.

With unemployment at a 14-year high and the banking sector strangled by bad loans, speculation is rife that without urgent reform Slovenia may soon be unable to find affordable financing and repay about 2 billion euros of outstanding debt due in mid-2013.

Parliament will probably vote on Bratusek's proposed cabinet in late March.

She has struck a deal with the Social Democrats and two of Jansa's former allies to hand her the reins for 12 months, with an option to keep herself at the helm until an election due in 2015.

Spending cuts and allegations of government corruption have fuelled street protests of a kind not seen since Slovenia split from federal Yugoslavia in 1991 and escaped the bloodshed that would tear apart the rest of the region over the next decade.

The downturn in Europe ravaged its vital export market, while 7 billion euros ($9.15 billion) in bad loans exposed a toxic mixing of politics and finance of the kind that has bedeviled banks across the continent.

Slovenia's 35-billion-euro economy is estimated to have shrunk 2 percent last year and unemployment is more than 12 percent.

"POLITICAL INSTABILITY"

Addressing parliament before the vote, Bratusek came out strongly against more austerity, quoting Nobel economics laureate Joseph Stiglitz in likening it to "mediaeval medicine".

"You draw blood and, if the patient does not get better, you draw some more. Our priority is growth and employment, which creates wealth for everyone," she said.

"I state clearly - there will be no Greek scenario in Slovenia."

Jansa, embroiled in a property scandal, had been gradually abandoned by his coalition partners since the turn of the year, further shaking market confidence that Slovenia can do what it takes to steady the ship. He denies any wrongdoing.

But given the policy differences in the likely new coalition - which would group the center-right Civic List and pensioners' party Desus from the previous government with the two center-left opposition parties - Bratusek is unlikely to have an easy ride.

The parties already differ on the need for a "bad bank", which Bratusek opposed, as a place to park bad loans and unburden local lenders to be recapitalized and sold.

"Bratusek's problem is that the center-left - her party's natural constituency perhaps - wants more pro-growth oriented policies, but at the same time the problems in the banking sector require pretty orthodox solutions," said Timothy Ash, emerging markets analyst at Standard Bank.

"Slovenia is kind of moving in parallel now with Italy, in terms of trends towards political instability," he said, evoking the dangerous stalemate in the euro zone's third largest economy following an inconclusive election this week.

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

It would be much tougher on Slovenia itself, forcing the government to make more spending and job cuts, but under international supervision.

For some of the Slovenes who have taken to the streets in their thousands since November to rally against corruption and the political elite, a change of prime minister was only a fig leaf.

"If they bite the bullet and work hard, they might just succeed," said pensioner Drago Ikic in the capital, Ljubljana. "But if they fail, then really all the politicians should just leave and call an early election."

($1 = 0.7628 euros)

(Writing by Matt Robinson; Editing by Andrew Heavens)

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