By Marja Novak

LJUBLJANA (Reuters) - A dispute over the leadership of Slovenia's ruling party erupted on Wednesday, posing a threat to the euro zone state's four-party coalition government and its efforts to avert an international bailout.

The mayor of Slovenia's capital Ljubljana, Zoran Jankovic, announced he would run for the leadership of the center-left Positive Slovenia (PS), the main ruling party, in a move that prompted dismay among the other coalition parties.

Jankovic, who set up the PS in 2011, resigned from its helm in February, enabling his successor, Alenka Bratusek, to form a coalition government with the three other parties and to become prime minister of the tiny Alpine country.

The parties had refused to join a coalition if Jankovic remained PS leader. They cited a state anti-corruption commission report which said in January Jankovic could not explain the origin of a big part of his income in past years.

"I decided to be a candidate for the president of Positive Slovenia. This was a difficult decision. I will explain my reasons... at the congress," Jankovic told a news conference, referring to a party gathering planned for October 19.

Bratusek has said she will seek re-election as PS leader.

"This is not good for Slovenia. Jankovic has a better chance of winning and if that happens the government will collapse," said Meta Roglic, a political analyst at daily Dnevnik.

A government collapse would force Slovenia to lose precious time in preparing early elections and increase the likelihood of it having to seek outside funding help, she said.

There is growing speculation among investors that Slovenia may become the next euro zone member to seek a bailout because of a rising amount of bad loans in its banking system.

UNCERTAINTY

"This is disappointing news... The market is now re-assured by this coalition and does not need uncertainty over the future leadership of PS and the future of Bratusek and the ruling coalition," said Timothy Ash, an analyst at Standard Bank.

Reaction from PS's coalition partners was negative.

"I hope the PS congress shows responsibility for the state. I appeal to members to think about Slovenia and not only their private business when voting," said Igor Luksic, head of the Social Democrats, the second biggest party in the coalition.

Interior Minister Gregor Virant, who heads the third largest coalition party, Civic List, was even more outspoken.

"We are not cooperating and will not cooperate with parties that are led by individuals who are burdened by corruption," he told the Finance daily.

PS is the strongest party in parliament with 27 out of 90 parliamentary seats but is very unlikely to form a coalition with any of the three center-right opposition parties.

Slovenia's banks, mostly state-owned, are nursing some 7.9 billion euros ($10.69 billion) of bad loans, equaling as much as 22.5 percent of national output. The government cannot recapitalize them until it gets the results of an international audit ordered by the European Commission and due in November.

Slovenia bought some time in May when it issued 2 bonds worth $3.5 billion. It will have to tap the markets again before its 5-year 1.5 billion euros bond expires on April 2.

Slovenia was the euro zone's most robust economy in 2007 but buckled under the global crisis due to its reliance on exports.

The deep recession revealed a culture of corruption and cronyism in the Slovenian state, which has so far refused to sell its major banks and a number of other firms, leaving the government in control of about 50 percent of the economy.

($1 = 0.7393 euros)

(Editing by Gareth Jones)

 

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