Slovenia may fail to avoid bailout despite austerity plan

AFP-JIJI

The European Union’s top economic official warned Monday that Slovenia may not have done enough to escape becoming the eurozone’s sixth bailout case.

Speaking after talks among eurozone finance ministers in Brussels, EU Economy and Euro Commissioner Olli Rehn said a decision on the former Yugoslav republic’s prospects would likely be made at June talks.

“It’s too early to say whether (the government’s) programs give a satisfying response,” Rehn said after Finance Minister Uros Cufer set out Slovenia’s plan to try and avoid what market movements have suggested for months may be an inevitable intervention.

“There is no time to waste,” Rehn said of measures resembling the conditions imposed for previous sovereign bailouts. “On 29 May we’ll assess whether further steps are needed concerning Slovenia.”

The former Yugoslav state’s government agreed, at the end of last week, to a series of privatizations, tax increases and austerity measures, seven weeks into the mandate of Prime Minister Alenka Bratusek. The scheme aims to contribute €1 billion ($1.3 billion) per year to the recession-battered country’s public finances. Moody’s has already cut Slovenia’s sovereign debt rating to “junk” level.

With Ljubljana expected to inject up to €1.3 billion ($1.7 billion) into its troubled banks — 3.7 percent of gross domestic product — Bratusek said on Thursday that the country’s deficit this year would reach 7.8 percent of gross domestic product, well above the 3 percent EU ceiling. The country “has to take swift and decisive action,” underlined Dutch Finance Minister Jeroen Dijsselbloem, “first and foremost to restore trust in the resilience of its banking sector.”

The slide in Slovenia’s public finances and the relationship with its banks is a clear echo of the controversial Cyprus case.

Following a green light at the eurozone talks, Cyprus on Monday secured the first €2 billion of its promised loans. But the eurozone ministers indicated that more needed to be done on antimoney-laundering measures, Dijsselbloem said. Detailed assessments of these measures drawn up on the insistence of the EU and the International Monetary Fund remain confidential owing to “proprietary information,” the Eurogroup heads said.

Greece too got clearance for further aid tranches, although these were broken up into smaller sums, with Athens still struggling to meet EU-IMF Troika demands covering tax collection, privatizations and the liberalization of closed professions.

Rehn acknowledged that the latest Commission projections for Greece in 2015 and beyond may deviate downward, although he stressed that the radical economic reforms of the past three years had rendered exports more competitive.

The talks continue on Tuesday, bringing in the rest of the EU, where tough disputes were expected especially over progress to the banking union, which EU leaders say would provide the definitive answer to the nearly 4-year-old debt crisis.

German finance chief Wolfgang Schaeuble appeared to put the brakes on quick integration when he warned in Monday’s Financial Times that EU treaties would need amending in order to create a cross-border resolution mechanism for failed banks.

Dijsselbloem said Schaeuble was raising “substantial” issues and, like French counterpart Pierre Moscovici, stressed that there was already “a lot” that could be done to nail down existing draft legislation before treaty change would become a factor.