BRDO PRI KRANJU, Slovenia Slovenian Prime Minister Alenka Bratusek lost the leadership of her center-left Positive Slovenia (PS) party to a challenger unwanted by her coalition partners on Saturday, a move that is likely to bring down her government and trigger an early election.
A party congress chose Ljubljana mayor Zoran Jankovic as the new PS leader, the party said. All three coalition partners have said they would not cooperate with a party led by Jankovic, who is under investigation for corruption and has denied all allegations.
Bratusek, whose government managed to save Slovenian from an international bailout last year, told congress before the vote that she cannot remain the prime minister without the party support.
"I can no longer be the prime minister if I do not have support within my own party," she said.
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.
Jankovic asked Bratusek after the vote not to resort to any hasty decisions, saying he hoped she would stay the prime minister.
"I think she does her work well," Jankovic told the party.
But according to the national news agency STA a junior coalition party, the Civic List, called for talks on the date of the early election immediately after the vote and analysts believe the government will not be able to survive the PS leadership change.
"I expect the coalition will break up and since it is very unlikely that a new coalition could be formed within the existing parliament we can expect early election later this year," said Borut Hocevar, an analyst of daily Finance.
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 hoped to reduce the budget deficit to 4.2 percent of gross domestic product this year, in line with EU demands, and 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 3.698 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 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.
Jaromir Sindel, an economist at Citi Research, said early election, if necessary, should take place as soon as possible.
"If the eventual election takes place before the summer, it would be better for Slovenian credit as the new government could be ready for important decisions in the second half of 2014 - the (preparation of the) state budget for 2015 and privatization issues," he said.
Slovenia has refused to sell its major banks, insurers, telecom and energy firms over the past two decades so the government still controls about half of the economy.
(Reporting By Marja Novak; Editing by Chris Reese, Bernard Orr)