LJUBLJANA The fate of Slovenia's coalition government, which saved the country from an international bailout last year, hung in the balance on Friday as Prime Minister Alenka Bratusek faced a challenge to her leadership of the main party.
Bratusek hopes to be confirmed as president of the center-left Positive Slovenia later on Friday. Victory for her rival, Ljubljana mayor Zoran Jankovic, would most likely topple the government.
"The result of the vote is entirely unpredictable and will be tight," said Tanja Staric, a political analyst at daily Delo.
Slovenia was the fastest growing euro zone member in 2007 but was badly hit a year later by the global financial crisis. It dodged the need for an international bailout last December by pumping some 3.3 billion euros ($4.6 billion) into its troubled banks, and expects the economy to grow by 0.5 percent this year after two consecutive years of recession.
With its borrowing needs covered for 2014, the former Yugoslav republic looks unlikely to have to resort to outside help even if the government collapses. But its fall could delay planned cuts and privatizations aimed at reviving the economy.
Bratusek indicated that she would resign as prime minister if she did not get the support of the party in a vote expected around 8.00 a.m. ET.
"My future leadership of the government of the Republic of Slovenia is on trial today," she said. "If I do not have your support to lead this party, you cannot expect me to seek support for leading the government from other parties."
She appealed to party members: "Why not acknowledge the successes of the government, which managed to stabilize the financial and economic situation of Slovenia in one year?"
All three of her coalition partners have said they will not cooperate with a party led by Jankovic, who is the target of several corruption investigations, including one related to the construction of a stadium in the capital. He denies wrongdoing.
Jankovic founded the PS two months before a 2011 election but failed to form a government despite winning the most votes. After a center-right cabinet collapsed over another corruption scandal, he quit the party helm in February 2013 to enable his hand-picked successor Bratusek to form a new government.
Bratusek's government hopes to reduce the budget deficit to 4.2 percent of gross domestic product this year, in line with EU demands, down from 14.7 percent in 2013 when the deficit soared due to state injections in local banks.
But Jankovic said on Friday Slovenia should launch 10 to 12 large infrastructure programs in order to revive the economy and create new jobs, even if that would result in missing the deficit target.
The yield on Slovenia's 10-year benchmark bond, which has fallen back to its 2007 level this year as investor confidence grows, rose to 3.664 percent on Friday from 3.562 a day before, according to Reuters data, and could rise further if political instability continues.
Analysts say a government collapse would lead to an early election and slow down reforms, which include privatizations and trimming the public sector and national health service.
Last year, Bratusek's government earmarked 15 firms for sale, including the largest telecom company Telekom Slovenia and the number two bank Nova KBM, in the hope of selling most of them by the end of this year. So far only two have been sold.
"Overall, if there is a risk of an early election, the most important point from our perspective is whether the new government will remain friendly to the privatization process, which has not been too popular among voters," said Jaromir Sindel, an economist at Citi Research.
Slovenia has refused to sell its major banks, insurers, telecom and energy firms over the past two decades so the government still controls about a half of the economy.
Analyst Staric said the coalition government would not last until the next regular election, due in late 2015, even if Bratusek won control of the party "because of the tension inside the leading party and within the coalition".
"Therefore we can expect an early election later this year or at the start of 2015 even if the government stays intact for now," she said.
($1 = 0.7227 Euros)
(Editing by Mark Trevelyan)