About Slovenia and the Debt Crisis

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Following the crisis in Cyprus, there was fresh talk about a bailout for Slovenia, and not for the first time. The crisis in Cyprus already tripled the country’s borrowing costs and could shut its market access.

On the other hand, Slovenia’s story is more similar to Ireland than to Cyprus, for good and for bad. Here are a few things to know about this country in regards to the European debt crisis.

Background

Slovenia is a small nation of around 2 million people. It became independent from Yugoslavia in 1991, joined the EU and NATO in 2004 and joined the euro-zone in 2007, become the first former communist country to do so.

Like Spain, the change into democracy and the acceptance into the international community was accompanied with hope and even euphoria. Like Spain and Ireland, the mid 2000s saw a banking and real estate boom, with the loan-deposit ratio getting out of control.

Like many other countries, the global financial countries led to a bust and to a change of government. Attempts to pass reforms didn’t succeed.

Current Political Scene

In late 2012 and early 2013, many Slovenians became disillusioned with the political elite and took to the streets. Protests against the mayor of Maribor spread to other cities as more corruption allegations were released by a special committee.

The prominent and controversial Slovenian leader Janez Janša was also among the accused. After ignoring the accusations and blaming everybody else, Janša eventually lost support and was forced to step down.

Since March 20th, Slovenia is led by Alenka Bratušek of the Positive Slovenia party. She became party leader only in January, when the previous leader of her party was temporarily renounced his functions at the party due to corruption allegations.

So, similar to Cyprus, Slovenia has a relatively new leader.

Economic Situation

The positive side is that Slovenia’s debt-to-GDP ratio is still low around 54% and could reach 59% with a bank bailout. This is far better than the situation in neighboring Italy, Germany or France. However, GDP  is expected to shrink by 2% in 2013.

The negative side is the banking sector: no, it’s only the 130% of GDP, not like Cyprus, but it is still suffering from the bust of the construction boom and other issues. 7 billion of bad loans weigh on the banks – about a fifth of GDP. The combined “hole” in their balance sheets of around 4 billion.

The IMF stated that Slovenia will need to raise 3 billion euros in 2013. A big chunk of this debt, around 1 billion euros, is due for renewal in June.

Market Access in Doubt

Banks have already lost market access and are dependent on the state and the ECB.

Slovenia’s borrowing costs tripled after the crisis in Cyprus. The government put off bond auctions due to the situation. The finance minister said that the country can afford to wait, but this is similar to the situation in Ireland, which cancelled a bond auction and found itself taking a bailout a few months later.

Bratušek and finance minister Uroš Čufer (an ex banker with Ljubljanska Banka) both stated that Slovenia can sort its problems on its own and that the country doesn’t need a bailout this year.

However, the governor of the central bank and ECB member Marko Kranjec had a different view: after saying his country doesn’t need a bailout, he did warn that “Slovenia is in a big financial, economic crisis”. Kranjec steps down in July.

Open Questions

  • Has Slovenia lost market access?
  • Will it need a bailout soon or can the new government take measures to stabilize the situation with its new mandate?
  • If the banking situation will be tackled, will depositors suffer a haircut like in Cyprus?
  • Will Slovenia’s banking issues have implications on other euro-zone countries?
  • How will another bailout go with the German public?

If there is a reader from Slovenia who could provide more insights, I would be grateful.

Further reading: Big Accounts in Bank of Cyprus to Suffer a Haircut of around 60%

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

13 Comments

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  4. at the momment slovenian government still without clear vision.why?they need banks to pump money from it(to theirs pocket).it is a state bank.
    regards from slovenija

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  8. Tilen Cuk on

    Humbug…
    1.)Stupid people should stop listening to J.Janša and his political cronies (and real jurnalist should’t post just anythin so that they can make a buck like Guardian etc.)
    2.)SDS party and J.Janša in front have been saying for the last two years that Slovenia will end up like Greece, so it has been all over the media (commercial, not national tv)in big letters ”Slovenia soon like Greece”(with the debt/GDP around 35% in 2011 wtf), not knowing that all of that time some international jurnalist are actually pay atterntion to their blabaring
    3.)We are now paying for J.J.’s BS’s
    4.)I am making my masters in finance on the faculty of economics in ljubljana; my professor for international finance dr.Mrak to the question will we need the troika? answered: no comment 🙂
    5.)The first bailout that Slovenia needed in the 90’s were a direct result from dissulusion of Yugoslavia, directly it was needed beacuse of the Serbs wanted to steal/take all of the wealth from the former member states and leave them with liabilites towards our commom international creditors, so we said no, and went on our own and therefore had to recapitalise to cover the potential losses/rating downgrades…
    6.)The current situation is going to spike our yield, overstating the risk premia in comparison to other quality soverign bonds with comparable macro picture, therefore the yield on the secundary market after the issuance is expected to fall
    7.)And last but not least: Slovenia will not be kicked around, and we still bite like hell as we did for millenia, the new generation is here and we are taking over with aspirations of kicking ass and taking names.

    If you don’t belive me, come and visit us and see the magic with your own eyes. 🙂

    ”I fell Slovenia”

  9. Tilen Cuk on

    You’re welcome Yohay. 🙂

    Regards to you in beautiful Barcelona

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