LJUBLJANA, Slovenia Slovenian Prime Minister Alenka Bratusek, who lost a vote for the leadership of her centre-left Positive Slovenia (PS) party in the early hours of Saturday, will reveal her next steps on Tuesday, sources close to the party said.
The sources did not say whether Bratusek would resign or attempt to continue as prime minister, but her coalition partners and analysts said her resignation was the most likely option after Ljubljana Mayor Zoran Jankovic regained the PS leadership at a party congress.
"Realistically she does not have other options but to resign," said Meta Roglic, a political analyst at daily Dnevnik, adding that would lead to elections in September or October.
Bratusek's three partners in the ruling coalition, who have in the past made clear they would not cooperate with PS if it was led by Jankovic, the party's founder, said they expected her resignation and an early election.
"With the election of Jankovic the time of this government is over," Igor Luksic, the president of the second-largest party, the centre-left Social Democrats, told daily Finance.
The centre-right Civic List and pensioners' party Desus added that they wanted a new election as soon as possible.
Jankovic formed the PS two months before the 2011 election but failed to negotiate a coalition government despite winning the most votes and quit the party helm in February 2013.
He is the target of several corruption investigations, including one related to the construction of a stadium in the capital. He denies any wrongdoing.
Slovenia was the fastest growing euro zone member in 2007 but was badly hit a year later by the global financial crisis. It dodged the need for an international bailout last December by pumping some 3.3 billion euros (2.73 billion pounds) into its troubled banks, and expects the economy to grow by 0.5 percent this year after two consecutive years of recession.
With its borrowing needs covered for 2014, the former Yugoslav republic looks unlikely to have to resort to outside help even if the government collapses. But its fall could delay planned cuts and privatisations aimed at reviving the economy.
NO HASTY DECISIONS
Bratusek had told the party congress on Friday that she would resign if she did not get the party's support.
"I can no longer be the prime minister if I do not have support within my own party," she said.
Jankovic asked Bratusek after the vote not to make any hasty decisions, saying he hoped she would stay on as prime minister.
"I think she does her work well," Jankovic told the party.
If Bratusek resigns, Slovenia's President Borut Pahor, political parties and parliamentary members will try to agree a new candidate for prime minister, a process likely to take several weeks and expected to end in failure. Only then can a new election be scheduled.
Analysts expect elections would stall key reforms which were designed to reduce the budget deficit to 4.2 percent of gross domestic product this year, in line with EU demands and down from 14.7 percent in 2013 when the deficit soared due to state injections in local banks.
"This is a serious risk to political stability ... and ongoing efforts to resolve the significant economic challenges facing Slovenia," said Timothy Ash, an emerging markets analyst at Standard Bank.
He expects a "significant negative" market reaction on Monday, after yields on Slovenia's 10-year benchmark bond jumped to 3,698 percent on Friday from 3.562 a day before, according to Reuters data.
Last year, Bratusek's government earmarked 15 firms for sale, including the largest telecom company Telekom Slovenia and the number two bank Nova KBM, in the hope of selling most of them by the end of this year. So far only two have been sold.
Slovenia has refused to sell its major state banks, insurers, telecom and energy firms over the past two decades so the government still controls about half of the economy.
Jaromir Sindel, an economist at Citi Research, said if an early election is going to be held it should take place as soon as possible.
"If the eventual election takes place before the summer, it would be better for Slovenian credit as the new government could be ready for important decisions in the second half of 2014 - the (preparation of the) state budget for 2015 and privatization issues," he said.
(Reporting by Marja Novak; Editing by Sonya Hepinstall)