Photograph by Jure Makovec/AFP/Getty Images
Slovenian Finance Minister Janez Sustersic in Ljubljana on Oct. 2, 2012
Slovenia hosted the European Central Bank’s monthly meeting last week, bringing the focus of Europe’s media onto its own financial problems. The country’s benchmark nine-year bond yields around 6 percent–down from about 7 percent during August, the level at which some other EU countries requested financial assistance. Slovenia was the first former communist country to adopt the euro, in 2007. In subsequent years, its banks, flush with cash, went on a lending binge that financed a construction boom, which then fizzled, leaving them saddled with non-performing loans.
I met the nation’s finance minister, Janez Sustersic, who told me the government is set on a strategy that he believes will result in Slovenia avoiding a bailout.
I started by asking Sustersic how the government plans to regain the confidence of investors, given the International Monetary Fund’s prediction that the Slovenian economy will shrink by 2.2 percent this year.
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It is true of course that we have to take some structural measures and that is what we are doing. Right now we have two days ago adopted a law on the bank asset management company, to address the credit-crunch problem. I think that is the most important measure to start the economy going from of this recession.
The government is setting up a so-called bad bank that will issue bonds to the banks in return for their non-performing loans. Sustersic said he is confident that the banks will be able to present these bonds to the ECB as collateral in return for financing.
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These would be government guaranteed bonds, so in principal they could be presented, but the ECB, as you know, never in advance will say what is eligible or not so we have to issue the bonds. We know what the regulations are of the ECB so we will try to follow the regulations. But the final decision will be taken by the ECB, of course, after the bonds have been issued.
The government is also planning legislation to add more flexibility to the country’s labor market and increase the retirement age, which now stands at 58 for women and 60 for men in some circumstances. The government’s last attempt at pension reform was rejected after a referendum in June, 2011. In Slovenia there is a rule that allows a referendum to be called if there are 40,000 signatures collected in support.
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We started negotiations now with the trade unions. They are going well so far. We have tried to approach them to listen to their main objections they had to the previous proposal, and another thing is that this proposal for the pension reform one year ago was adopted by the parliament but then rejected in a referendum, and I think that after the referendum it was very clear to everyone that nobody actually gained from this, and there is now more realism in the sense that this needs to be done even if you don’t agree with the all the details.
Slovenia passed the budget last week that aims to reduce the deficit to below 3 percent in 2013 from 6.4 percent in 2011. Sustersic said a worse-than-expected economic performance would oblige the government to change the targets, though it wants to stick to its expenditure-cutting goals.
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It is true we have some shortfall in the revenues because of worsening economic conditions, so finally you are right, this figure may be changed, but for us it important we keep the expenditures under the ceilings, that we show our determination and our willingness to do whatever is necessary, to stick to this commitment. If there are some less revenues, I think that would be an understandable consequence of the economic situation.
The government also wants reduce its holdings in the three largest banks, the telecommunications operator and some insurers, accelerating assets sales to gain investor confidence.
Finally, I asked the minister whether a country should have to apply for a bailout to get the ECB to buy its bonds. He said no, suggesting instead that the ECB could help stabilize bond yields without prompting for countries such as his that are vulnerable to market and swings.
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I think that is one idea that would certainly help stabilize the yields of the bonds. We see in the euro area that very often bonds fluctuate, yields fluctuate from day to day, on some news and so on and especially in the countries that are a little bit vulnerable like ours, every news affects us a lot, sometimes not justified, so I think the main purpose of this idea is to stabilize expectations a little bit.
Original post is Slovenia’s Sustersic Speaks to Bloomberg (Videos) by Euro Crisis.
