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Party quits Slovenian government, election looms

Source: Thomson Reuters Foundation - Wed, 23 Jan 2013 18:07 GMT
Author: Reuters
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* Snap election looming, second in just over a year

* Troubled euro zone member trying to avoid bailout

* Analyst expects cut in sovereign ratings (Updates with party quitting and analyst comment)

By Marja Novak

LJUBLJANA, Jan 23 (Reuters) - A junior partner in Slovenia's ruling coalition quit on Wednesday, stripping the government of its majority in parliament and dealing a blow to the troubled euro zone member's efforts to avoid a bailout.

A second snap election in little over a year looked likely, after Civic List said it had left the ruling coalition over the refusal of conservative prime minister Janez Jansa to resign in a corruption scandal.

"Civic List is quitting the coalition," parliament speaker Gregor Virant, head of Civic List, told reporters after a meeting of the party board.

Jansa can hold on at the helm of a minority government, at least until parliament nominates a new prime minister or calls an early election. He will lose his finance minister, Civic List member Janez Sustersic.

"The minority government can continue for a while but it seems that sooner or later an early election will be held," said Borut Hocevar, an analyst at the Slovenian daily Finance.

"This crisis is certainly pushing Slovenia towards a bailout," he said.

Hit by falling demand for its exports, the Alpine country is battling to stabilise its public finances and reassure markets to avoid becoming the latest member of the euro zone to seek an international bailout.

The government bought some time in October when it managed to issue its first bond in 19 months, averting the need for a bailout for around six months.

Civic List had issued an ultimatum to Jansa to quit or face losing his majority, after an anti-corruption commission issued a report earlier in January saying the prime minister had failed to explain the source of some of his income.

CREDIT DOWNGRADE

Jansa has denied wrongdoing and says he will not resign. But two more parties in the five-party coalition government have also threatened to leave in the coming weeks unless a new prime minister is nominated.

The corruption allegations have fuelled public anger over spending cuts and labour reforms.

On Wednesday, some 100,000 public sector employees held a strike over pay cuts, while around 14,000 employees in the metals and electronics industries also walked off the job, seeking wage increases of up to 7.5 percent.

State employees are angry about a plan to lay off workers and cut wages by some 5 percent this year, adding to a cut of around 3 percent in 2012 as the government tries to narrow its budget shortfall to around 3 percent of national output from 4.2 percent last year.

The public sector strike closed almost all schools, kindergartens and universities in the country of 2 million people. Hospitals were offering limited care with reduced staff.

Protests over the cuts and corruption allegations have caused regular disruption and sometimes turned violent.

Analysts said a snap election would slow vital reforms and dent investor confidence.

"I think the credit ratings will be downgraded whether or not there are early elections as, given the risks and the likely deterioration in the debt/GDP ratios around the bank restructuring programme, Slovenia is simply not deserving of a single-A rating anymore," said Standard Bank analyst Timothy Ash. (${esc.dollar}1 = 0.7526 euros) (Additional reporting by Tina Smole; Editing by Matt Robinson and Kevin Liffey)

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