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30 April 2014

Slovenian government faces collapse, bond yields rise


On Monday, Slovenian Prime Minister Alenka Bratusek lost the leadership of her party having the potential to collapse the government triggering early elections. The political crisis in Slovenia was reflected by under performing bonds jumping 22 basis points to 3.91 per cent in early trade.

As reported by Reuters, Prime Minister Alenka Bratusek lost the leadership of the ruling centre-left party, threatening the government's survival. She lost the leadership of her Positive Slovenia Party to Zoran Jankovic, the mayor of Ljubljana. But the party's three coalition partners have said they will not cooperate with Jankovic, who is under investigation for corruption.

Bratusek said on Tuesday she would remain in her role until early elections which she would like to see by July.

As Bloomberg reported, Bratusek, who became premier in March 2013, helped Slovenia avoid an international bailout by recapitalising the bank industry with €3.2 billion, moving toxic loans to a state agency, starting state-asset sales and pledging to stem the widening budget deficit.

The fall of Slovenia's government and early elections would slow efforts to improve the economy of the tiny ex-Yugoslav republic, which has been showing tentative progress. "Efforts to forge a new ruling coalition are likely to be dashed and early elections appear as the most probable outcome", so Timothy Ash, an emerging-markets economist at Standard Bank Plc in London, said in a report before Bratusek’s decision today. 

In reaction to the recent developments, Slovenian bonds underperformed on the eurozone market, with 10-year yields jumping 22 basis points to 3.91 per cent in early trade.

"The market clearly doesn't like it when you have volatility in the government, especially for a country like Slovenia where there's a lot to do," said ING strategist Alessandro Giansanti. "We expect in the short term the risk of having a political crisis will result in some widening in Slovenia spreads, especially for a country that has been performing well over recent months."

Like other peripheral countries, Slovenia has seen its borrowing costs fall sharply this year, with 10-year yields falling back to 2007 lows as investors regain confidence in the eurozone region as fears about its debt crisis ebb.





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