Slovenian Lawmakers Approve Bailout Law Criticized by ECB

(Bloomberg) --

Slovenian lawmakers approve a law designed to protect investors who lost money during a 2013 financial bailout, defying criticism from the European Central Bank that it breaks euro-area rules.

The law, approved in a 46-34 vote with two abstentions and backed by elements of Prime Minister Marjan Sarec’s ruling coalition, puts the onus of compensating more than 100,000 investors on the Bank of Slovenia if they win cases in Slovenia’s courts. Investors are preparing lawsuits against the central bank, accusing it of wrongly saddling them with losses during the 3.2 billion-euro ($3.6 billion) rescue of the Alpine state’s lenders.

Slovenia’s central bank vowed to challenge the law in the Constitutional Court. Both it and the ECB say it may force the euro-area member’s monetary body to engage in illicit financing by paying obligations owed by the state.

“We don’t believe the proposed measures are in conflict with the rules on monetary financing,” said Metod Dragonja, a state secretary at the Finance Ministry. “The Bank of Slovenia potentially paying compensation isn’t monetary intervention on behalf of the state.”

While Slovenia is one of the smallest EU members, the law may have far-reaching consequences for the euro area by setting a potential precedent that undermines efforts to force investors share the burden of financial-sector rescues. That would risk depleting central bank reserves.

Sarec’s support of the law is a reversal from the previous government, which opposed investors’ accusations that the central bank overestimated the amount of capital and writeoffs needed to save the country’s three state-owned banks.

The government at the time conducted the rescue with permission from the European Commission and the ECB on the condition that investors also share the burden, leading to a write-off of more than 900 million euros worth of stocks and bonds.

--With assistance from Gordana Filipovic and Jasmina Kuzmanovic.

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

To contact the editors responsible for this story: Irina Vilcu at isavu@bloomberg.net, Michael Winfrey, Balazs Penz

©2019 Bloomberg L.P.