Slovene ECB Member Slams Government Bill on Bailout Compensation

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The head of Slovenia’s central bank criticized a draft law aimed at compensating investors for losses in the country’s 2013 banking bailout, saying it would violate the fundamental principals of its mandate.

Governor Bostjan Vasle, who was appointed in December, wrote an open letter to Prime Minister Marjan Sarec Monday in which he echoed objections to the draft from the European Central Bank. The law is at the center of a criminal probe demanded by investors who allege the central bank wrongly wrote off hundreds of millions of euros in stocks and bonds held in banks that were rescued with 3.2 billion euros (3.6 billion) of taxpayers’ money.

While Slovenia is one of the euro area’s smallest members, the draft law may have far reaching consequences for the currency bloc. If the government pushes through the legislation, it could set a potential precedent that may undermine efforts to make investors share the burden of financial-sector rescues across the single-currency zone.

Vasle said a main problem with the government’s draft was that it puts the burden of reimbursing lenders on the central bank rather than the government. State assets, and not central bank holdings, would also be required for paying any compensation to avoid breaching a euro-zone rule that prevents monetary financing of government affairs, according to EU law, he said.

"I must uphold rules on illicit monetary financing and the independence of the Bank of Slovenia, and ensure they are enforced," he wrote in the letter.

The Bank of Slovenia isn’t opposed to the compensation of small investors, if courts decide it’s necessary, Vasle said. But he added that doing so must respect EU law.

Pressure on the central bank has risen this year, with the nation’s Court of Audits inspecting its books to assess whether the 2013 bailout -- which was approved by both the European Commission and the ECB -- was done properly.

Prosecutors are probing abuse-of-office allegations against Vasle’s predecessor, Bostjan Jazbec, and his former team over their role in the bailout. The European Commission has also sued Slovenia for seizing European Central Bank documents in a raid at the central bank in Ljubljana three years ago as investigators looked into its role in bank bailouts. Jazbec and the central bank deny any wrongdoing.

To contact the reporter on this story: Jan Bratanic in Ljubljana at jbratanic@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net, Michael Winfrey, Andrew Langley

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