Political instability could cost half a billion euros

Due to political instability in Slovenia with the possibility of a government collapse, the costs of its borrowing on the international financial market will increase, emphasize Slovenian economists close to the government, estimating that interest costs could rise by half a billion euros and negatively affect investors.

The required yield on Slovenian government bonds with a 10-year maturity rose on Wednesday on electronic exchanges by 0.30 percentage points to 5.02 percent, surpassing the five percent level for the first time this year, after a prolonged downward trend due to the reform measures of the current government and the improved situation in the eurozone, of which Slovenia is a member, Slovenian media reported.

Economist Matej Lahovnik, who served as Minister of Economy in two left-center governments but supports the survival of the current conservative government and its austerity measures, claims that the corruption scandal surrounding Prime Minister Janez Janša could increase Slovenia’s annual borrowing costs by about 500 million euros due to rising interest costs and negatively impact foreign investors.

“Political stability is a crucial factor for investor decisions, and capital is a timid bird,” Lahovnik said in an interview for the government-friendly portal of Telekom Slovenije, adding that Slovenian companies are among the most indebted in Europe and therefore urgently need additional fresh capital that could be lacking if a government collapse occurs due to the probable breakup of the current coalition and new parliamentary elections.

Economist Jože P. Damijan shares a similar view, having served as Minister for Development in Janez Janša’s first government in 2005 but quickly withdrew, dissatisfied with the pace of privatization and the reduction of state ownership in companies and banks. He stated that he is not inclined towards the current Janša coalition, but that it is much better than the previous Pahor government due to its persistence on reforms, addressing the real issues: reducing public spending, reforms, and the rehabilitation of the banking system.

Decisive statements from the leaders of the three coalition parties that they will soon leave the government due to Janša’s corruption scandal if he does not resign from that position have heralded “painful upcoming months of uncertainty and growing distrust of financial markets in Slovenia,” which will complicate the conditions for financing its debts, a large portion of which is due this year, Damijan assessed, adding that the situation after likely new early elections could be even worse if the left, which is averse to reforms, wins.

The President of the Slovenian Parliament, Gregor Virant, reiterated on Tuesday for Slovenian television that he expects Janša’s resignation and that it would be a “state-building move” from him as it might allow the current or a similar coalition to function, but he acknowledged that the likelihood of early elections is increasing.

Virant asserted that Janša, after the withdrawal of Virant’s Civic List (GL), the Slovenian People’s Party (SLS), and the Democratic Party of Pensioners (DESUS) from the coalition and government, despite the Prime Minister’s previous statements that he would not resign, actually has no other option, as the only alternative is to put the confidence in the government to a vote, where the three parties withdrawing from it will vote against confidence, thus opening a one-month constitutional period for seeking a new mandate, after which, in case of failure, early elections would follow.