The European Central Bank spoke out about Slovenia's deepening problems ahead of a parliamentary no-confidence vote on Wednesday, with ECB board member Joerg Asmussen telling the Eurozone member that the government must quickly restore the viability of its banking sector and establish a planned "bad bank", reported Reuters.

"Slovenia is in a difficult political situation," Asmussen said in a speech in Berlin on Monday. "There will be a no-confidence vote on Wednesday but it would still be important to drive the restoration of viability of the banking sector and secondly to get the so-called 'bad bank' going relatively quickly."

Doubts are growing over the fate of much-needed labour reforms in Slovenia, the sell-off of state assets and a 'bad bank' where the government wants to park an increasing number of bad loans before recapitalising and selling the banks. Slovenia's mostly state banks are burdened by bad loans worth about 20% of GDP.

Without such measures, Slovenia will likely be unable to find financing and repay some EUR2bn of outstanding debt due in mid-2013, meaning the country will have to ask for a bailout.

The government has lost its majority in parliamentary after coalition members walked out over corruption allegations against conservative PM Janez Jansa.

On Monday, the People's Party and its two ministers - Economic Development and Technology Minister Radovan Zerjav, and Agriculture and Enviroment Minister Franc Bogovic - formally withdrew from the ruling coalition government.

The departure of the People's Party from the ruling coalition followed the example of the Citizen's List and Pensioners' Party since the beginning of 2013, and left Jansa with a coalition of only two parties - his Democrats and New Slovenia, which together hold 30 seats in the 90-member national assembly.

Positive Slovenia (PS), the largest opposition party in parliament, has filed a motion for a vote of no-confidence in the Jansa government coupled with a motion to elect PS interim head Alenka Bratusek as prime minister.

Source: bne