Italy's Tiny Neighbor in Euro Area Is Fighting to Stay on Track

(Bloomberg) -- With Italy plunged into political turmoil, its tiny eastern neighbor in the euro region is trying to stay out of it.

Slovenia holds elections on June 3 and an anti-immigrant former prime minister is leading the polls. It’s unlikely, though, that he will have enough support to regain power for a third time and opponents are maneuvering to keep him out of office.

Italy's Tiny Neighbor in Euro Area Is Fighting to Stay on Track

The former Yugoslav state became the first former communist country in the region to join the euro in 2007 and has been a stable ally of Germany and the European Union establishment. But as Italian nationalist parties prevail next door, Slovenia now finds itself sandwiched between a country in political chaos and rogue EU member Hungary with a choice to make.

At the center of the struggle are Janez Jansa, an ally of Hungarian Prime Minister Viktor Orban and his “illiberal democracy,” and Marjan Sarec, a comedian-turned-mayor who has vowed to sweep out a political elite that’s held sway since the fall of the Iron Curtain.

The latest opinion polls put Jansa’s Slovenian Democratic Party on 25 percent as he plays on concern about an influx of refugees. Sarec’s group is second on 16 percent and the Social Democrats, whose leader has left open the possibility of forming a government with Sarec, on 14 percent.

“The twisted left in Slovenia is inviting migrants from completely alien civilizations,”Jansa, 59, said in the town of Celje this month at a party rally whereOrban was the guest star. “We will end such anti-Slovenian and anti-European policies.”

Italy's Tiny Neighbor in Euro Area Is Fighting to Stay on Track

Sarec, 40, is countering that message, attacking Jansa for fostering resentment toward immigrants. The runner-up in last year’s presidential election, he has built popularity by promising to clear out the Slovenian old guard and bring new faces to key institutions, including the central bank.

A New Jersey-sized country of 2 million people, Slovenia was crossed by more than 600,000 refugees at the height of Europe’s worst migrant crisis since World War II.

“It’s scaremongering -- it’s about creating an inappropriate atmosphere -- and feeding people’s fears can never bring success,” Sarec, who once played a drunken villager critical of the government on a popular television show, said in an interview last week. “We strongly believe that we can form a government, a center-leaning coalition that will focus on the development and our country’s future.”

Political parties opposed to Jansa suggest their alignment on both economic and social policy may give them a chance to sideline the former prime minister even if he beats them in the elections. Teneo Intelligence said in a research note the election is an “open race” that will lead to a fragmented parliament.

New Leadership

President Borut Pahor said he will ask whoever places first in the elections to try and form a government. However, the president also said that if the winner fails to muster a majority, he will offer the mandate to another party leader.

“The Social Democrats are ready to join a coalition with all good-thinking people,” party leader Dejan Zidan said by phone. “And we are excluding those who spread lies and fear.”

Forming a government may take time, slowing down decisions in a country that needs to fill important posts and sell state assets.

The Slovenian central bank is without its head as Governor Bostjan Jazbec left in April for another job. For now, this vacancy weakens the country’s voice on the European Central Bank’s Governing Council. Candidates for a replacement are still to be proposed and the pick will be approved by the new parliament once it is formed.

The country is trying to contain the effects of a double-dip recession that knocked living standards to 83 percent of the EU average, from about 90 percent in 2008, according to the latest Eurostat data. Past administrations have dragged their feet to sell state companies, including the biggest lender Nova Ljubljanska Banka d.d.. The European Commission is now investigating the decision to cancel that sale.

“It seems Jansa will have a first go at forming a coalition, but that won’t be easy and then Slovenia may go down the Italian scenario,” said Zarko Puhovski, a political analyst and professor at University of Zagreb. “Not in terms of political parties and their stances, but a failure to build a stable coalition and the likelihood of another vote.”

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