Slovenia’s Slovenly Cleanup Clues
Slovenian shares tried to preserve MSCI frontier index gains as the new government faced an early confidence vote over the budget and the central bank head contemplated an EU bailout request with bond yields stuck at 7 percent. The European Commission brandished the excess deficit procedure in its latest review with bank recapitalization sending it to 7 percent of GDP next year as recession lingers. The public debt/output ratio is put at 75 percent in 2015 with leading state lender NLB reporting a EUR 300 million loss with rising provisions through the third quarter. Fitch Ratings calculates that needed injections are double the initial EUR 2 billion estimate, as the IMF called for “decisive action” on structural reform and foreign investment opening. The parliament has inserted banking law provisions for bond and equity holders to share the cost which may embed a premium and deter strategic investors targeted in particular from the former Yugoslavia. Croatia’s stock market is off 10 percent after brief excitement when EU partnership was signed as the sovereign was downgraded while refusing to consider an IMF program, while renewal negotiations remain bogged down in Serbia, which has turned to the UAE for balance of payments help. The young Finance Minister in Belgrade has enlisted tarnished former Managing Director Strauss-Kahn to bolster its submission but fresh elections may again scramble the cabinet lineup and economic policy. In Cyprus the post was assigned to a longstanding Fund executive after spring’s EUR 10 billion lifelines, with the next installment on track after a Troika visit emphasizing privatization and bank balance sheet repair with deposits still shrinking under outward capital controls. Household debt/GDP at 135 percent tops the Eurozone as unemployment heads toward 20 percent on a 15 percent output contraction expected through next year. An independent panel on the offshore center’s future recommended a single regulator and blanket deposit insurance, but the president and central bank governor continue instead to blame each other for the island’s predicament.
Original recipient Greece is also under fire to fill a EUR 2 billion budget gap as further Troika releases were suspended despite a projected primary surplus. Ten companies entered the MSCI emerging markets roster as the Athens bourse rallied 30 percent through November on bank buying despite 30 percent NPL levels, according to accountants Price Waterhouse Coopers. After the ban on the far-right New Dawn party and arrests of leaders, the populist Syriza plans additional efforts to out the coalition with only a 4-seat majority. Isolation deepened from the crisis-prone PIIGS as the IMF granted Portugal its $2 billion eligible portion and both Ireland and Spain indicated they will exit soon from emergency operations without seeking an additional backstop from the new ESM. As these county panics ebb France was in the frame following a ratings reversal to AA, which it labeled “inaccurate criticism” as President Hollande’s approval was fixed at a post-World War II chief executive nadir.
