[Marxism] Mayday in Slovenia

Louis Proyect 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.

No wonder.

NY Times May 5, 2013
In Europe, Growing Concern Slovenia Is Next to Need Bailout

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 
peaceful prosperity.

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 year.

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 
emergency aid.

“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 
the consequences.”

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 
yet own.

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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