(MENAFN- AFP) A budget vote this week will demonstrate whether eurozone member Slovenia has the political resolve to face down its financial troubles without outside help as the cost to shore up its banks soon comes due.
"Our financial prospects are based on this budget, the lives of our citizens will largely depend on your decisions this week," Prime Minister Alenka Bratusek warned lawmakers Monday as they began a four-day budget debate tied to a confidence vote.
Bratusek linked Thursday's vote on the budget to a confidence motion in order to shore up support in her four-party coalition to continue with difficult reforms as austerity fatigue mounts among Slovenians who have seen their economy stuck in recession since 2011.
Her government, which is widely expected to win Thursday's vote, took office in March following a period of political instability that delayed efforts to confront the fiscal and banking crises.
The display of a strong government pursuing a clear plan to redress public spending is also needed to reassure markets as Slovenia must finance its borrowing and may need the help of investors to fix its banks.
But Slovenians are unhappy at more spending cuts and tax hikes needed to bring the public deficit down to 3.2 percent of gross domestic product in 2014 from 4.0 percent this year, as planned in the budget.
Two-million-strong Slovenia, once a model newcomer to the European Union, is only expected to see a slow recovery in 2015, according to EU and government forecasts.
To cope with the crisis, public sector wages have already been cut twice since the start of the crisis, pensions have been frozen, social benefits reduced and the value-added tax has increased, while new ones were also planned.
The jobless rate has also risen to 13 percent of the workforce.
Lawmakers are to decide this week on a disputed real estate tax, which the government sees as a key mechanism to increase revenues next year in order to maintain the current level of social benefits while reducing the public deficit.
But it is the weak state of its banks that could force Slovenia to become the sixth eurozone country to seek a bailout, a scenario that experts already feared a year ago but which the government has so far managed to avoid.
We can do it ourselves
The banks will return to the forefront next month when EU-supervised stress tests the country's top 10 lenders are completed next month and show how much money is needed to shore them up.
Slovenia has budgeted 1.2 billion euros ($1.6 billion) to boost the capital of the banks, but commentators have said the amount needed could be many times that.
"There will be no troika (of bailout lenders: the International Monetary Fund, the European Union and the European Central Bank), we can reach our objectives by ourselves," Bratusek vowed Monday.
Ratings agency Fitch estimated last week that the cost of recapitalising the banking sector would be about 4.6 billion euros, but predicted the state "will meet the bulk of these capital needs."
Capital Economics, a London-based macroeconomic research institute, also believes Slovenia can avoid a bailout.
And if Slovenia was forced to resort to one, Capital Economics predicted it would be a "more low-key affair than the Cyprus package" which caused angst across Europe by forcing savers to accept losses.
"Given that the Slovenian government arguably faces a liquidity rather than a solvency crisis, any bailout is likely to be limited to providing cheap financing for recapitalising banks, as in Spain last year, rather than a full country programme," like Ireland or Cyprus, Capital Economics said.
The daily Delo's commentator Miha Jenko wrote Tuesday that the beyond the banks the issue is whether the government will turn the country's fortunes around.
"The question is whether (exports), along with the government's measures, will be enough for us to pick up from the bottom," he wrote.
In a positive sign, the finance ministry said Tuesday it had raised 100 million euros in six- and 12-month treasury bills, paying lower rates.
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