"Considering the direction of the Constitutional Court's decision as demonstrated by its decision regarding the referendums on the state holding and the bad bank, we've decided to withdraw the initiative," said Janez Posedi, the head of the Pergam confederation, which unites several private and public sector unions.

"This affirms our respect for the rule of law and we expect the same from the government side, that is that it will respect the rule of law and the (principles) of welfare state," Posedi told a press conference in Ljubljana.

The unions expect the government to "lead social dialogue with the unions as equal partners" in matters related to the socio-economic position of workers in the public and the real sectors, Posedi said.

He called on the government to begin negotiations on their demands "immediately", saying the unions would defend the rights of their members with all conventional means of union struggle, including with a general strike.

Similarly, Branimir Štrukelj, the head of the SVIZ trade union of employees in education, science and culture, said the unions were left with the "classic" unionist tools such as demonstrations and strikes.

He said the unions would fight to protect the things that are crucial for the country at the moment: a quality public service, education, science, health.

"We will defend the welfare state and will not allow for layoffs while the government is lowering the tax on the profit of the capital," he said.

Prime Minister Janez Janša meanwhile congratulated the unions for a "victory of common sense" in a Twitter message, saying that their decision removed the final obstacle for a "normal entry into the new year".

Finance Minister Janez Šušteršič also commented on the move although his ministry has not yet been officially notified of it. He said he was glad that the unions heard the government warnings of the consequences that a referendum would bring.

He explained that the Finance Ministry had not been in talks with the unions on a withdrawal of the initiative, but that such talks would be urgently needed, as the sides must agree on the measures to cut the public sector wage bill or else the only remaining option would be layoffs.

"The number of employees must not rise, the budget says we must reduce the public sector wage bill, which will partly also mean reducing the number of employees," the minister said.

He also noted that the government would probably prepare a response to the public sector unions' demands already at its next session.

The Government Communication Office also responded to the news, saying that Slovenia would now avoid all "the negative consequences that a temporarily financing would bring" and that budget payments would be carried out as scheduled. "In the case of wages, this means the December pay will be paid out on 4 January 2013," the office said.

Parliamentary Speaker Gregor Virant will sign the 2013-2014 budget implementation act today and send it to the president. After the president signs it, the act will be published in the Official Gazette, so that the budget will be implemented as of 1 January 2013, Virant said.

According to the speaker, today's decision of the National Assembly on the constitutional review of the referendum initiative has now become null and void.