The government of Slovenia has announced a package of measures it hopes will help avoid an EU bailout. The measures include a tax increase, a major restructuring of Slovenia's ailing banking sector, and a programme of mass privatization. Slovenia's mostly state-owned banking sector is suffering from mounting bad debts and the government has struggled to borrow money. The European Commission will now consider the plan. It is expected to deliver its verdict by the end of the month. Slovenia has been in recession since 2011, and analysts have cited it as the most likely country to seek help from the EU following the bailout of Cyprus earlier this year. European officials have expressed concern over the stability of the country's banking sector, which is struggling under billions of euros of bad debts. Meanwhile the government's ability to borrow money was dealt a blow last week when Moody's, a ratings agency, cut Slovenia's bonds to "junk" status. Despite this, the government was able to raise 3.5bn euros (£3bn; $4.6bn) from international bond markets last week, which has bought it some time. The package of measures was announced by Slovenia's recently installed Prime Minister, Alenka Bratusek, and her Finance Minister, Uros Cufer. The measures include a 2% increase in VAT to shore up government finances. A "bad bank" will also be created to allow the banking sector to offload its bad debts.  Meanwhile a total of 15 publicly-owned businesses will be sold off, including the second biggest bank, Nova KBM, the flag-carrying airline, Adria Airways, and Telekom Slovenia. The biggest bank, NLB, has already announced plans to downsize. Announcing the measures, Ms Bratusek said she expected the budget deficit to rise to 7.8% of GDP this year, but was forecast to fall to 3.3% next year. She also said the VAT increase was decided on as the tax rise with the least impact on economic growth. Slovenia is seeking to avoid becoming the latest in a strong of EU countries to seek a bailout from European authorities. Earlier this year Cyprus agreed a 10bn euro bailout with the EU and the International Monetary Fund (IMF) after its banking sector faced near collapse.
 

 

David Cameron has scrapped plans to deliver a long-awaited speech on Britain's future in the European Union after abandoning a trip to the Netherlands as the Algerian hostage crisis worsened.

Downing Street indicated that the prime minister would deliver his speech, in which he planned to warn that Britain could "drift towards the exit" unless powers are handed back from the EU, once the hostage crisis had ended. The postponement was announced shortly before the prime minister was due to fly to meet the Dutch prime minister, Mark Rutte, before his speech in Amsterdam.

Some Tories were surprised that No 10 took so long to abandon the trip. Downing Street had acknowledged the gravity of the crisis in Algeria on Thursday morning by announcing that arrangements were being made for the prime minister to chair a meeting of the emergency Cobra committee from The Hague on Friday.

Ed Miliband, who was privately suggesting that the prime minister appeared to be putting the interests of Conservative Eurosceptics above his duties to deal with a security crisis, had earlier said that the prime minister had spent six years preparing a speech that will cause five years of uncertainty.

Cameron had been due to warn his fellow European leaders that British membership of the EU could be put at risk unless its membership terms are changed. "If we don't address these challenges, the danger is that Europe will fail and the British people will drift towards the exit," Cameron was due to say in the speech to an audience of business leaders in Amsterdam.

"There is a growing frustration that the EU is seen as something that is done to people rather than acting on their behalf. And this is being intensified by the very solutions required to resolve the economic problems.

"People are increasingly frustrated that decisions taken further and further away from them mean their living standards are slashed through enforced austerity or their taxes are used to bail out governments on the other side of the continent."

Lenders are braced for pain (or should be) because they can see how far below face value Greek bonds are trading. Viewed from a distance, the manoeuvre is also affordable: cutting Greece's debt-to-GDP ratio to the eurozone average of 85% would cost €140bn (£123bn), or about 2% of eurozone GDP, calculates thinktank Capital Economics. But big-picture calculations of affordability are one thing. Viewed from close-up, even a modest Greek buyback programme could crystallise serious losses on weak banks outside the country. And if Greece gets debt relief, who is next? In one sense, those rising Italian bond yields, expressing worries of contagion, are betraying the fear that the EU banking system simply isn't strong enough to absorb a Greek hit and the possibility of more blows from elsewhere. Eurozone leaders have themselves to blame, of course: the best time to force the struggling banks to raise more capital was last year; it may now be too late to control the fallout. As if to liven the plot further, stress tests on EU banks will be published after European markets close on Friday. That's an unpredictable, and potentially explosive, element in the mix. An emergency summit of eurozone leaders is planned the same day. That's definitely a good idea: there is an emergency.

Spanish 10-year bond yields hit 6% today. Italy's climbed at a similar pace, reaching 5.7%, meaning its cost of 10-year borrowing has increased by a full percentage point since 6 June. These are big moves, which is why it's no exaggeration to say the crisis in the heart of the eurozone – as opposed to the drama at the periphery – is under way. As Gary Jenkins at Evolution Securities pointed out, eurozone sovereign bond yields, once they pass 5.5%, have tended to accelerate upwards to the supposedly critical level of 7%. Two percentage points away from a "potential disaster scenario", he said of Italy and that was before yesterday's 0.4% percentage point increase eliminated part of the buffer. There is no simple explanation as to why Italy finds itself the centre of attention. It is not news that the country's debt-to-GDP ratio, at 119%, is the second worst in the eurozone. Rather, the driver seems to be the dithering displayed by eurozone leaders over Greece, specifically over the design of a bailout package. The market can see that, if the authorities can't agree on how to treat holders of Greek bonds, the risk of an uncontrolled default, which would reverberate through the European banking system, is rising. The urgent need, then, is to agree the Greek package. Unfortunately, the current timetable seems to imagine a deal struck in September. On current form, Spanish and Italian bond yields could be at a crisis point before then.

GREECE - Three months into a historic rescue program worth €110 billion - about $140 billion at the time, and half of Greece's gross domestic product - the government exceeded the deficit-cutting benchmarks set by the I.M.F. The tough new austerity measures met angry resistance in a country where one out of three people is employed in the civil service, which until now has guaranteed jobs for life. The shake-up of Greece's public sector represents one of the biggest overhauls of the country's welfare state in a generation. Demonstrations claimed their first fatalities on May 5, 2010, with three people reported to have died inside a bank building set ablaze by protesters as workers across Greece went on strike. Protests became relatively restrained after that. But almost a year after the bailout, the Greek economy continued to sag under 340 billion euros in debt. The tax increases and spending cuts imposed as part of the austerity package sent the economy far deeper into recession. Greece’s economy shrank 6.6 percent in 2010, far more than the 1.9 percent decline in 2009. Some economists are forecasting a 4 percent fall in 2011 before a mere 2 to 3 percent drop in 2012.

Bucharest - Romania

The World Bank’s Board of Executive Directors on Thursday approved a EUR500 million loan to support a social assistance program of Romania’s government estimated at EUR5.5 billion. "Through this project, the World Bank is partnering with Romania to support the implementation of Romania's Social Assistance Reform Strategy, which was adopted by the Government in March 2010," the bank said in a news release. It said the project's objective is to improve the overall performance of Romania's social assistance system by strengthening performance management, improving equity and administrative efficiency, and reducing error and fraud. The project will focus on the government's programs for low-income households and vulnerable groups. The share of overall social assistance funds going to the poorest quintile is projected to increase from 37.7% in 2009 to at least 45% in 2014. "The Government of Romania has launched an ambitious and comprehensive social assistance reform program," says Peter Harrold, Country Director for Romania at the World Bank. "The World Bank welcomes the opportunity to work with the Government in implementing this program. We have together designed an innovative approach to achieving these ends, through the provision of financial support as each of twenty well-specified results are achieved in the Government's reform program for this key area." The bank also said that the implementation of the Social Assistance Reform Strategy will bring the fiscal cost of social assistance programs in line with the level of the new EU member states, and will contribute to the fiscal sustainability of the social protection spending. The approved project is a EUR500 million "results-based" specific investment loan over a three year period, supporting the Government of Romania's Social Assistance Program estimated at EUR5.5 billion.