About Slovenia And The Debt Crisis

by: Yohay Elam

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.


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, becoming 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 crisis 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 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 is 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 (where big accounts in the Bank of Cyprus are set to suffer a haircut of around 60%). 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?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.