Cyprus syndrome looms over Ljubljana

Published on 10 April 2013 at 13:45


After Cyprus, will the next victim of the banking crisis be Slovenia, as has been feared for several months? While the situation of the Slovenian banks is indeed worrisome, “the OECD and the European Commission are optimistic” about the ability of Ljubljana to resolve the question by itself, leads Večer – and this despite a negative growth forecast of – 2.1 per cent for 2013.

Slovenia, adds the Maribor daily

needs no urgent aid from the euro area, but it must carry out structural reforms in time, the OECD insisted yesterday, presenting its Economic Survey on Slovenia. While in its first report back in 2011 the OECD had focused on education reform, this time around, however, it zeros in on the Slovenian banking system and the restructuring of the welfare state.

The Financial Times, less reassuringly, does not hesitate to compare the country to Cyprus –

Just as in the Cypriot case, Slovenia’s troubles originate in its wobbling banking sector. The former communist country never fully privatised its lenders. These took excessive risks and gave preferential treatment to other state-owned companies. The recession exposed the limits of the cosy ties between politics and banking. Non-performing loans have jumped to 14 per cent of the banks’ portfolios, or about €7bn. Alenka Bratusek, the prime minister, insists that the comparison between her country and Cyprus is unfair. She has a point. The size of the Slovene banking system is 1.4 times bigger than gross domestic product. While large, this is well below Cyprus, where bank assets were above 700 per cent of GDP. Slovenia’s debt is rising, but is significantly below Cypriot levels.

In the panorama of “small economies weakened by the crisis”, such as Malta, the Latvia and Luxembourg, listed by the Swiss newspaper Le Temps, “Slovenia remains the most pressing case” –

In the wake of the Cypriot crisis, the cost of borrowing for Slovenian government bonds climbed to almost 7 per cent on 28 March. The country needs nearly €1bn by June to honour its maturing debt. […] Under the direction of Alenka Bratušek, the new government is tackling the banking problem head-on. It has announced the recapitalisation of the banks and the creation of a “bad bank” defeasance structure to host the toxic debts, estimated at €7bn, which should start to operate as early as June.

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