The Bank of Slovenia is seriously considering a bailout for Nova Ljubljanska Banka (NLB), which suffered losses amounting to as much as 386 million euro over the last three years, Ljubljana’s Finance daily recently reported.

Five years after joining the euro, the Slovenian economy faces new trouble. In fact, the post-Yugoslav republic has never really recovered fully from its 8-percent GDP drop in 2009, the eurozone’s sharpest (except Finland’s), and Eurostat forecasts just 1-percent growth this year, with sovereign debt rising quickly and consumer spending stalling. Local economists are even more sceptical, forecasting GDP growth in 2012 of just 0.2 percent, or even negative if conditions in the eurozone continue to deteriorate.

“The rapid deceleration in growth has been due mainly to adverse changes in the international environment, which have slowed down export and capital spending”, Boštjan Vasle of the Institute of Macroeconomic Analysis and Development told Finance.

But this is only part of the truth, as Slovenia’s credit ratings have also suffered. Fitch twice downgraded the country in recent months, first in September 2011 from AA to AA-, then, in November, putting the country on its watch list with a negative outlook.

Janša has pledged ambitious reforms

This is because the Slovenian government has found itself hard pressed to reduce the public deficit, which has never fallen below 5 percent of GDP since 2009. Forecasts for this and next year are equally pessimistic. The official deficit reduction plan was partly torpedoed by the voters, who in June 2011 overwhelmingly rejected a proposed pension reform package that called for raising the retirement age to 65 years and cutting the replacement rate (which links the employee’s pension to their final salary).

The dispute almost toppled the government and new elections produced no convincing solution as leader of the victorious centre-left Positive Slovenia party, Zoran Janković, failed to form a cabinet. It was only two months after the elections that on Januart 28 the Slovenian parliament voted liberal Janez Janša into office as the new Prime Minister [sworn in on February 10].

Mr Janša has pledged ambitious reforms, including cutting budget spending by 5 percent, a gradual reduction of the corporate tax from 20 to 15 percent, raising the tax bonus on R&D spending from the current 40 percent to 100 percent, and freezing pensions for the time being. However, delivering on these promises may prove extremely difficult. The new coalition will hardly be a model of stability, the five parties comprising it having just two votes more than the opposition.