POLITICAL CURRENTS THREATEN TO SINK CENTRAL BANK

C O N F I D E N T I A L LJUBLJANA 000051

SIPDIS

SIPDIS

DEPT FOR EUR/NCE (SSADLE)
TREASURY FOR V.ATUKORALA

E.O. 12958: DECL: 01/30/2017
TAGS: PGOV EFIN SI
SUBJECT: POLITICAL CURRENTS THREATEN TO SINK CENTRAL BANK
GOVERNOR

Classified By: COM Thomas B. Robertson for reasons 1.4 (b) and (d)


1. (C) Summary. Central Bank Governor, Mitja Gaspari, widely
credited for guiding Slovenia's successful adoption of the
Euro, finds himself embroiled in a political controversy that
threatens his renomination as Governor. Right wing
legislators accuse Gaspari of undermining Slovenia's
credibility with the European Central Bank (ECB) based on a
leaked report sent from the Slovenian Central Bank to the ECB
in November.


2. (C) Summary Continued. In the last week of his first
term as Central Bank Governor, Mitja Gaspari invited COM, on
short notice, to meet with him at Bank headquarters. The
purpose of the meeting was not entirely clear, even after it
had ended, and Gaspari clearly was not at ease. Gaspari, who
has been nominated by President Drnovsek for a second term as
Bank Governor, finds himself under a political cloud
manufactured by far right nationalist (SNS),and sometime
rabble rousing member of parliament Zmago Jelincic. Though
he made a pretense of wanting to brief the Embassy on the
path to the Euro and to urge the GoS to maintain good fiscal
discipline now that it has joined the Euro zone, we assume
Gaspari was encouraged to engage the U.S. Ambassador by his
political supporters in case there was any chance for an
intercession with PM Jansa on his behalf. (Note. It is
widely believed among some politicians, particularly in the
oppositin and the public that the U.S. Embassy in Ljubljana
has significantly more influence over policy making in the
GoS than could realistically be the case. End Note) End
Summary.


3. (C) On short notice, COM with Pol/Econ Chief accepted
Central Bank Governor Mitja Gaspari's invitation to visit him
in his offices. No specific reason was given for the
request, but in light of the media frenzy surrounding his
re-nomination by President Drnovsek to continue in his
position, it seemed likely he would want to talk about that.
Opening the meeting, Gaspari summarized the Bank's work in
preparing for the Euro and did ask for the USG to advocate
with the Minister of Finance and others to stay the fiscally
conservative course, now that Slovenia is in the Euro zone.
He suggested that Slovenia was "coming to the end of a cycle
of prosperity" and that the GoS needed to be prepared for a
downward trend in 2008. Now that it is in the Euro zone,
there are many fewer tools for the government to cushion
against external economic shocks (i.e. foreign competition.)
COM agreed that Slovenia would need to be vigilant and he had
confidence in the Minister of Finance and Gaspari, himself,
who had worked so well together to bring Slovenia into the
Euro zone.


4. (C) Acknowledging the elephant in the room, COM then asked
about upcoming parliamentary vote for Central Bank Governor.
Gaspari told COM that he was "not lobbying" for his job. The
story in the press is about a report sent by the Central Bank
to the ECB which, ostensibly, was overly critical of the GoS.
And for this, Jelincic claims Gaspari is a disloyal Slovene
and should not keep his job. Gaspari says the "uncleared
document left the bank" at the time he was in the U.S. in
November. It's existence was "frozen" for a few weeks
(presumably until the festivities surrounding the Euro
introduction were completed) and became news two weeks ago.
He said it was all clearly politically motivated, the vote
would be close and he was prepared to accept either outcome.


5. (C) Comment. Conventional Wisdom says SNS MP Zmago
Jelincic is doing this at the behest of the Jansa government
which would like someone else as Bank Governor. Jansa,
however, would be hard pressed to make anything but a weak
political case for Gaspari's removal. This political
kerfuffle gives members of parliament sufficient cover to
vote against the President's choice in Friday's vote. That
vote promises to be close with a 44:44 split already
developing leaving the two minority MPs (Italian and
Hungarian) to break the impasse. Otherwise, all would agree,
Gaspari has had an exemplary term as Central Bank Governor,
enjoys the respect of his peers in Europe and abroad, and has
ably guided Slovenia to joining the Euro when no other new EU
member could make the grade. Interestingly, Gaspari admitted
that he had met with PM Jansa but gave no hingt as to the
outcome of that discussion.


6. (C) Comment Continued: Digging a little deeper into the
political motivations behind the maneuvering to remove
Gaspari, it seems Jansa sees Gaspari as Drnovsek's man and

still beholden to the LDS. Gaspari's credentials and the
general high regard for his work are hard to question.
However, he was Drnovsek's Minister of Finance and Drnovsek
put him into his current job. It is rumored that Gaspari is
the keeper of some dark secrets about the financing
arrangements between the LDS and major (government owned)
Slovenian businesses that may continue though LDS is out of
power. It is may be that Jansa wishes, at least, to send a
shot across Gaspari's bow, if not push outright for his
removal. End Comment.
ROBERTSON