The Slovenia Times

First Year of Bratušek Govt - Troika Averted, Major Challenges Remain

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Focused on avoiding the arrival of the troika of lenders (European Commission, European Central Bank and the IMF), the four-party coalition has steered policy away from strict austerity, putting emphasis on shoring up Slovenia's credibility on global financial markets with an all-out effort to fix the ailing banking sector and promises of privatisation.

Starting out by declaring a need for more time rather than aid, the government led by Bratušek, the country's first female prime minister, appears to have succeeded in convincing international partners that it is serious about solving Slovenia's problems. After spiking at near 7% in June 2013, the yield on Slovenian 10-year bonds has recently dropped below 4% for the first time since 2010.

Emboldened by a two-year extension until 2015 for reducing Slovenia's budget deficit to the EU-compatible 3% of GDP, the cabinet embarked on a bank bailout aimed at stabilising the economy. The EUR 3bn cash injection last December has been followed by the first signs of an economic upturn that have come courtesy of a growing export sector.

However, a full-fledged recovery is far from guaranteed and promises of reform must now be implemented to keep Slovenia's borrowing on a sustainable footing. Internal and external dangers lurk for a government that has seen its approval rating drop from the high 40% in the first months in office to between a 25-33% in the most recent public opinion polls and its harmony tested with very public differences on key issues.

Even after agreeing to shed its one-year interim tag at the beginning of this year, the four coalition partners - Positive Slovenia (PS), Citizens' List (DL), Social Democrats (SD) and Pensioners' Party (DeSUS) - continue to face a difficult act of balancing their various platforms as they take decisions on key measures, including taxes, health reform and privatisation.

The opposition, which came on board in May to help push through key constitutional amendments enshrining the EU's golden fiscal rule and banning referendums on fiscal matters, has since been largely critical of what it views as "tax-and-spend" policies.

After having shifted away from strict austerity of the Janez Janša cabinet, the government's efforts have included tax increases, including raising the VAT rate in July of last year and implementing a real estate tax as of this year. The latter, especially, has been very unpopular and widely criticised, while also subject to several challenges which are still pending at the Constitutional Court.

PM Bratušek has argued that the government has chosen to keep a welfare state over massive cuts in pensions and public services that would have been brought on by strict austerity. The opposition headed by the Democratic Party (SDS) argues that public services are still deteriorating and that welfare would be better provided by a more competitive economy that would create jobs.

The opposition says that this requires lower taxes and a leaner public sector. It has also been critical of the government's bank bailout, arguing the money Slovenia borrowed for this - it has carried out EUR 6.5bn in various bond issues in the past year - was acquired at too high a price, while the process of mopping up bad loans lacked transparency and therefore faced the danger of being abused by the very people who caused the mess.

The SDS presented a shadow government programme on Saturday, saying it shows that it does not want to merely criticise government policies but present a viable alternative with a clear set of measures it claims to be aimed at reducing taxes and cutting red tape in order to unshackle the economy.

Government officials are adamant that the course the cabinet has taken is right and that the initial stage of stabilising the economy must now be followed by reforms that will help create sustainable growth which would in turn translate into new jobs and tangible benefits for the people.

Since signing a new coalition contract and undergoing a shuffle which has seen the appointment of new ministers for health, the economy and Slovenians abroad in February, the government has promised to carry out health reform and make fixes to the 2012 labour reform to increase flexibility.

Moreover, it has pledged to avoid further tax increases and instead focus on rooting out the shadow economy and gradually reduce costs in the public sector through soft measures, including job cuts through attrition. Restructuring of the corporate sector aimed at deleveraging indebted companies has also been labelled a priority.

Another key area has been the fight on white collar crime and corruption, where hundreds of investigations into dodgy practices of recent years have been opened by police. While trials are proceeding at a slower pace, several convictions have been achieved, including in high profile cases such as the management buyout of beverage group Pivovarna Laško.

Analysts believe that the government will have to produce tangible change to show that it stands for more than just keeping the status quo. They have also highlighted that it will have to be careful to keep a minimum degree of cohesion so as to prevent the differences between the partners from tearing the coalition apart, while they see the desire to riding out the term until the next general election in the autumn of 2015 as a major driving force in this respect.

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