After smoothing tensions in Slovenia, PM Bratusek seeks to win over Europe

If a week is a long time in politics, then two months can feel like an eternity. That has certainly been the case for Slovenian Prime Minister Alenka Bratusek.

Ms. Bratusek, the country’s first female premier and the telegenic leader of Pozitivna Slovenija (Positive Slovenia), only took office in late March. But she has spent the short weeks since attempting to negotiate passage between the Scylla of a European Commission that demands solutions for Slovenia’s ailing banks and the Charybdis of a public with limited stomach for further austerity.alenka_bratusek--621x414

And while Brussels’ verdict on Slovenia’s proposed reforms is expected tomorrow, she has already won plaudits at home for her handling of Slovenia’s biggest crisis since its secession from Yugoslavia in 1992.

“So, so far, so good,” a leading Slovenian economist says of the new premier’s performance. The economist, who is close to the government, was not authorized to speak and so asked not to be named. “[She] has a nice public appearance ,and she hasn’t antagonized the public in the way the former premier always did. Working in her favor is also the fact that she is a completely new figure in our politics,” the economist told The Christian Science Monitor.

Financial crisis

The immediate cause of Slovenia’s current travails is a familiar problem across the eurozone’s struggling periphery: undercapitalized and struggling banks. Slovenia, a nation of 2 million tucked in between Austria, Italy, Croatia, and Hungary, has been in recession since 2011.

After independence – and particularly after membership of the European Union in 2004 and the euro in 2007 – Slovenian banks extended generous credit lines to the “managers” of many formerly state-run companies to purchase controlling stakes in these businesses. These so-called “management buyouts” were politically popular, as they ensured that Slovenian industry remained in national hands.

But questions have been raised about the probity of these management buyouts. In the wake of the 2008 financial crisis and the tightening of credit globally, many of the loans made to fund these purchases are underwater, taking Slovenia’s once-formidable banking sector with them.

Further, the bursting of a construction bubble that grew from 2004 to 2008 has left empty properties across the country, particularly in Ljubljana, and tens of thousands of unemployed. Anecdotally, emigration has increased.

Corruption

On the streets of Slovenia, frustration with the economy has been compounded by the corruption that has dogged Slovenian politics in recent years.

Bratusek only became leader of Positive Slovenia when former President Zoran Jankovic was forced to resign earlier this year. A state anti-corruption commission found that he failed to report fully €2.4 million ($3.1 million) of assets accrued during his six years in office. (He remains mayor of the capital, Ljubljana.)

The same anti-corruption commission also found then-Prime Minister Janez Janša guilty of systematically violating law on the reporting of assets. A coalition headed by Mr. Janša’s center-right Slovenian Democratic Party fell in February, to be replaced by a new coalition with Bratusek and Positive Slovenia at its apex.

Janša’s downfall was also fueled in part by protests that began last November in Maribor, the country’s second-largest city. Tens of thousands protested against Mayor Franc Kangler, also accused of corruption. Here, for the first time since independence, Slovenian riot police used tear gas on protesters.

Mayor Kangler was forced to step down in December, but not before the protests had spread across Slovenia.

Staving off a bailout

The fallout from the corruption probe left the relatively unknown Bratusek as an unexpected beneficiary. But while Bratusek might be a new face on Slovenian television screens, she has a relatively long political pedigree.

Although only elected to the Slovenian parliament in 2011, for six years she was head of the directorate of the state budget at the ministry of finance under the former Liberal Democracy of Slovenia (LDS) administration that ruled from independence until 2004. That has helped her navigate the tricky political maneuvering currently required in Slovenia, where Europe and the public are pulling in opposite directions.

“If the politicians are too tough, they are out at home. If they are too soft, they are out from Brussels,” says Primoz Cirman, a leading economics writer for the Slovenian newspaper daily Dnevnik. “Right now [the government] are trying find out where the equilibrium is.”

Earlier this month, Bratusek announced a series of measures aimed at convincing the European Commission that Slovenia, the most developed economy in the former Yugoslavia, can plug a multibillion-euro hole in its banks’ balance sheets and stave off a eurozone-led bailout.

Proposals include the creation of a “bad bank” to allow the banking sector to offload non-performing debts; a 2 percent increase in VAT; and the sales of 15 publicly-owned businesses including Telekom Slovenia and national carrier Adria Airways.

Smaller protests

Bratusek’s presence has softened the country’s ongoing demonstrations, whose size and frequency have decreased in recent months.

In Metelkova, a former barracks of the Yugoslav National Army in Ljubljana that has been home to squatters since 1993, Anej Korsika from the nascent Initiative for Democratic Socialism explained that the change of government has taken some of the sting out of the protest movement.

“The struggle under Janša was much easier,” he says. “[Janša] called the protesters ‘Communist zombies’ and ‘leftist fascists’ and all these things which really infuriated people and really mobilized them to go onto the streets in bigger numbers than they would otherwise.”

Slovenia prepares for summer of discontent

Ljubljana, Slovenia – In Slovenia, few traits are as highly prized as gospodariti, literally the ability to manage finances prudently. Gospodariti was often cited to explain Slovenia’s emergence as an industrial motor of Marshal Tito’s Yugoslav system during the Cold War. As Yugoslavia collapsed in bloody fratricide,gospodariti again came to the rescue, helping a newly independent nation of just two million people to fashion a flourishing economy on the edge of a warzone.

Two decades later Slovenia’s cherished reputation for fiscal rectitude has, like the status of its government bonds, been reduced to junk.

On May 29, the European Commission told Slovenia that its heavily indebted banking system would require an independent review. The same report gave Slovenia until 2015 to bring its budget deficit below the European Union threshold of 3 percent of gross domestic product.
ljubljana-slovenia
The Commission also called on Prime Minister, Alenka Bratusek, to push forward with a package of fiscal proposals announcedlast month. These measures include the sale of fifteen publicly-owned businesses, a 2 percent increase in Value Added Tax (VAT) and the creation of a “bad bank”.

Slovenia appears to have staved off the short-term threat of becoming the sixth Eurozone member to receive a bailout — but everything is far from green in this picturesque Alpine state.

Difficult transition

Ljubljana, Slovenia’s compact capital, is peppered with empty apartment blocks and unused retail units. Across the country, emigration is on the rise. Unemployment, historically low even after communism, stands at over 13 percent. Lack of infrastructure investment has terminally weakened a once powerful manufacturing sector.

Slovenia has twice been in recession since 2009. This year the economy is expected to shrink by around 2 percent. Prospects for growth are “weak even in a quite long medium term horizon,” a leading Slovenian economist who spoke on condition of anonymity, said in Ljubljana, the capital. “We have a contracting domestic sector and an exporting sector that is slowly losing momentum.”

When Slovenia gained its independence in 1991 it was by far the most developed of the former communist economies of Eastern Europe. Tito’s 1974 reforms of Yugoslavia’s socialist system helped open the country up, socially and economically. Taking advantage of its industrial workforce and its location between Central Europe and the Balkans, international companies such as Bayer and Renault built factories in Slovenia.

We are now in the state of shock that Slovenia avoided 20 years ago. Maybe our story is proof that you can’t change systems without a shock.

Primoz Cirman, economics writer,

“We had communism which was not as severe as in other countries,” said Primoz Cirman, an economics writer for Dnevnik, a leading Slovenian newspaper daily newspaper. “The fist was not as iron as it was in other countries, it was more mellow.”

In the early 1990s Slovenia’s first generation of post-independence leaders looked to consolidate the country’s economic strength within its borders, rather than follow the privatisation drive in much of Eastern Europe. “For the first time in our history we were the masters of our own property. We thought ‘let’s not waste it, let’s privatise slowly,” said Cirman.

The roots of Slovenia’s current crisis lie in this uneasy transition from socialism to the free market. Many of Slovenia’s best companies remained in the hands of the state and a new generation of ‘managers’. Many of these managerial executives took out huge loans to buy controlling stakes in the businesses they ran.

Slovenian banks relied on the cheap credit that flowed in the wake of joining the European Union in 20004 and, particularly, the Euro currency three years later to fund these managerial buyouts. When the credit crunch hit in 2008 loans stopped performing.

Attempts by Slovenian bank to plug the gap in their finances by tightening lending to the national economy has contributed to the slowdown in Slovenia but not solved the country’s banking crisis. Its two leading banks, Nova Ljubljanska Banka and Nova Kreditna Banka Maribor, are badly in need of recapitalisation. Last month, Nova Ljubljanska Banka’s Chief Executive Officer Janko Medja said that the bank would transfer €1.3bn ($1.69bn) of non-performing loans to the new “bad” bank.

“Slovenia’s problem was not the (global) economic crisis it was the naivety of the banking sector,” said Igor Luksic, a professor of politics at Ljubljana University and president of the opposition Social Democrats. “There was a great appetite for real estate and the great appetite of managers who wanted to buy their companies. That made the crisis of the banking sector.”

‘State of shock’

The crisis has also laid bare the close connections between business and politics in Slovenia. Earlier this year, Prime Minister, Janez Jansa, was forced to step down after a report from a national anti-corruption agency identified irregularities in his tax returns. Ninety-four per cent of Slovenians consider bribes to be a normal practice in business, according to a recent study by Ernst & Young.

It is not all bad news for Slovenia. At 56 percent, public debt is well below the EU average. The Slovenian banking sector is just 1.6 times GDP. There are some success business stories, especially in technology. But with an export-led economy and a paucity of lending at home, there is no end in sight for the Slovenia’s economic travails, despite Wednesday’s cautious green light from Brussels.

“The economy has collapsed. We have a corrupted political class and a managerial system,” said Franc Trcek, professor of sociology at the University of Ljubljana. “People have said that they have enough. At the same time half of the people will go and vote for the old parties. The other half are in apathy.”

On the streets of Slovenia, apathy has given way to frustration. Last autumn, a series of protests broke out over the decision to introduce speed cameras in Maribor, a once prosperous industrial city near the border with Austria. Thousands took to the streets in what became known as the “Maribor Uprising”.

For the first time since Slovenia’s independence from Yugoslavia in 1991, riot police fired tear gas on its citizens. Maribor’s mayor, Franc Kangler, was forced to step down, but not before the protests had spread across Slovenia, contributing to the downfall of the Jansa government in Ljubljana.

The demonstrations have died down, for now, but journalist Primoz Cirman believes they could reignite again. “The fire is out but the fuel is still there,” he said as a summer shower pours down on the outdoor market on Petkovsek Embankment in Ljubljana.

As for Slovenia, Cirman said that the current crisis shows that the country didn’t manage the transition from communism to capitalism as well as it – and the rest of the world – had thought. “We are now in the state of shock that Slovenia avoided 20 years ago. Maybe our story is proof that you can’t change systems without a shock.”

This piece originally appeared on Al-Jazeera