[Marxism] Mayday in Slovenia
lnp3 at panix.com
Sun May 5 16:24:20 MDT 2013
On 5/4/13 5:13 PM, michael perelman wrote:
> Finally, the level of political and intellectual sophistication I saw was
> absolutely amazing. The young people were intensely interested in ideas,
> especially those relevant to building a new society.
NY Times May 5, 2013
In Europe, Growing Concern Slovenia Is Next to Need Bailout
By DAN BILEFSKY
LJUBLJANA, SLOVENIA — Only a few years ago, Bine Kordez was feted as
Slovenia’s star entrepreneur. After transforming a home-improvement
chain, Merkur, into a regional giant, he drew on easy credit from
state-run banks to help orchestrate a €400 million management buyout of
the company, the largest in the country’s history.
The rewards of success included an imposing mountainside retreat and
frequent mention of his name as a possible future finance minister of
this small, idyllic Alpine country.
Now, though, Mr. Kordez stands convicted of forgery and abuse of office
for financial dealings as Merkur struggled under a mountain of debt.
“My mistake and the mistake of the banks was to vastly underestimate the
risk,” Mr. Kordez, 56, said in a recent interview at his home near the
picturesque town of Bled, with a view of Slovenia’s highest peak. He
awaits a decision later this month on an appeal of his conviction, which
could send him to prison for five years.
As fears grow that Slovenia could follow Cyprus and become the sixth
euro zone country to seek a bailout, his rise and fall have come to
symbolize the way easy and cheap credit, combined with Balkan-style
crony capitalism and corporate mismanagement, fueled a banking crisis
that has unhinged a country previously praised as a regional model of
The recent bailout of Cyprus at a cost of €10 billion, or $13 billion,
which included stringent conditions forcing losses on bank depositors,
has focused minds in Ljubljana, the Slovenian capital. Slovenia’s
struggling banking sector is saddled with about €6.8 billion worth of
nonperforming loans, about one-fifth of the national economy. Slovenia
is now in recession, and the gloom across the euro zone shows little
sign of abating. A European Commission forecast released Friday said
that France, Spain, Italy and the Netherlands — four of the five largest
euro zone economies — will be in recession through 2013.
Last Thursday, Slovenia bought time by borrowing $3.5 billion on
international markets. That was two days after Moody’s Investors Service
cut the country’s credit rating to junk status, citing the banking
turmoil and a deteriorating national balance sheet. Analysts said the
bond sale would probably enable the government of the new prime
minister, Alenka Bratusek, to stay afloat at least through the end of
The Cypriot debacle has shown how bailing out even a small country can
damage the credibility of the euro currency union. But Slovenia, with
two million people, insists that it is not Cyprus and will not seek
“For the time being, I have a sound sleep,” Ms. Bratusek, the
42-year-old prime minister, said in a recent interview.
This week, on Thursday, Ms. Bratusek, only a little more than a month in
office, is expected to present a financial turnaround plan to the
European Commission, the executive arm of the European Union. She said
that privatizing Slovenia’s largely state-owned banking sector was a
priority, along with creating a “bad bank” to take over nonperforming loans.
Her government, she said, will also unveil plans by July to sell the
country’s second-largest bank, Nova Kreditna Banka Maribor, along with
two large state companies that she declined to specify. The sales could
raise up to €2 billion, she said.
Ms. Bratusek, who once headed the state budget office at the Finance
Ministry, said Slovenia’s government debt, which analysts say rose from
about 54 percent of gross domestic product to around 64 percent with
last week’s bond sale, still ranked at the lower end of that scale in
the euro area.
But the 6 percent interest rate Slovenia offered on the 10-year bonds in
last week’s debt sale, at a time when some euro zone countries are
enjoying historically low borrowing costs — Germany’s equivalent bond is
trading below 1.2 percent — might only add to the country’s financial
Mujtaba Rahman, director of Europe at Eurasia Group, a political risk
consulting firm, said the new financing could backfire if it lulled the
government into laxity about making vital structural changes.
“The new financing was not a vote of confidence in the Slovenian
government or in the economy, but rather reflects investors attracted by
high bond yields,” Mr. Rahman said. “A bailout could still prove
What went wrong in Slovenia? The country, wedged between Italy, Austria,
Hungary and Croatia, was considered the most promising among the 10 new
European Union entrants when it joined in 2004. That was 13 years after
it declared independence from Yugoslavia, avoiding a bloody Balkan war
that had swept up other countries in the region.
When Slovenia was admitted to the euro club in 2007, the single currency
helped fuel easy credit and a construction boom. It was the same sort of
heady access to cheap money that led to economic disasters in Ireland
and Spain. But economists say the Slovenian variety of euro-euphoria
hangover can be traced to a failed transition from communism to a fully
functional market economy.
After gaining independence in 1991, Slovenia — conditioned by centuries
of foreign subjugation — was determined to retain local control of its
prized assets. It embarked on a spree of management buyouts of partially
state-owned companies, overseen by executives who in many cases were
uncomfortably close to people running the government and the state banks.
“After the transition in Slovenia, the state retained a stranglehold
over the economy,” Mr. Rahman said, “and the country today is suffering
Bine Kordez at Merkur was not the only head of big Slovenian company
whose involvement in a bank-aided management buyout ended badly, or
whose access to easy credit backfired. Two of Slovenia’s biggest
construction companies, Vegrad and SCT, are now in bankruptcy
proceedings. Istrabenz Holding, a sprawling food, tourism and energy
conglomerate that once owned a vast swath of Slovenia’s economy, is
undergoing a court-mandated debt restructuring.
Igor Bavcar, Istrabenz’s former chief executive, was charged with money
laundering, and Bosko Srot, former chief of the big brewing company
Pivovarna Lasko, with abuse of authority, in connection with a 2007
deal. Prosecutors say Mr. Bavcar attempted to buy a stake in Istrabenz
from Lasko through a series of shady intermediaries. Both deny any
A big provider of buyout loans was Slovenia’s largest state-owned
financial institution, Nova Ljubljanska Banka, or N.L.B. The government
installed new management late last year, as the bank’s lending portfolio
turned increasingly sour.
Janko Medja, N.L.B.’s new chief executive, said that the rush to
privatize Slovenian state-controlled companies, combined with the money
coursing through Europe before the 2008 financial collapse, had prompted
banks like N.L.B. to practically give money away “for free.”
In the case of Merkur, which Mr. Kordez joined as finance director in
1988, the advent of the euro sent the home-improvement company’s profit
soaring, as newly prosperous Slovenians rushed to renovate their
apartments and houses. By 2008, the once modest group of neighborhood
hardware stores had €1.3 billion in annual revenue, and the number of
employees had more than doubled to 5,000.
Mr. Kordez decided to consolidate his grip. He recounted recently how he
convinced a group of 10 banks, including 4 foreign ones and N.L.B., to
lend him more than €350 million.
“I had no real collateral for a deal of that size,” he said. “Just my
house , a few hundred thousand euros, a smart business plan and my
So he offered as collateral the assets of Merkur, a company he did not
The trouble intensified in 2009 when, with the global economic downdraft
in full force, Slovenia’s construction bubble burst. As home improvement
projects fell idle, Merkur sales dropped by about 20 percent.
Mr. Kordez described taking out fresh loans to repay the outstanding
ones, even as Merkur paid dividends to Mr. Kordez’s investment vehicle,
Merfin, which he then used to help pay off spiraling debts.
“In some countries this could be called a Ponzi scheme,” said Primoz
Cirman, a leading economic writer for Dnevnik, a Slovenian newspaper.
“But here it was called financial engineering.”
By 2010, the banks had lost patience and Mr. Kordez was pushed out. An
audit later revealed that the buyout had destroyed €200 million of
Merkur’s value. The company is now majority owned by the banks and
undergoing a court-mandated debt restructuring.
In 2011, prosecutors accused Mr. Kordez of embezzling €9 million from
Merkur in 2008 through a byzantine deal in which his investment firm,
Merfin, bought a shopping center with an improper €10 million loan from
Merkur. A few days later, Merfin sold the property to a construction
company for €21 million, an artificially high price.
Merfin, prosecutors said, then used the profits to help pay back its
soaring loan costs.
Last September Mr. Kordez was found guilty of forgery and abuse of
office. He said he was trying to save the company and had not broken any
laws. Prosecutors counter that he abused his position to save himself
from financial ruin.
As he awaits a ruling on his appeal, Mr. Kordez has been riding his
mountain bike throughout the country, and he says he refuses even to
contemplate a possible prison term that he compares to a diagnosis of
cancer. He would leave behind his wife, and an adult daughter and son.
The country’s financial disease, he said, is hardly his fault.
“Someone needed to be blamed for this mess,” he said, “And I have become
the sacrificial lamb.”
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