Concern erupted this week across the Euro Zone over fears that Slovenia would be the next Cyprus in asking for a bailout, allegations which Slovenia's Prime Minister Alenka Bratusek was quick to rebuff. Bratusek, just three weeks into her term as PM is challenged with the task of reforming the stagnating Slovenian economy, which is in its second recession since the global economic crisis.
Speaking in Brussels alongside EU Commission President, José Manuel Barroso, Bratusek denied the need for an EU bailout at the present time, "We don't need help. We just need time." The concern about the Slovenian economy arose earlier this week when Slovenia missed it's debt sale target by €200 million, according to Nerja Cehic of Bloomberg. This was coupled with the fact that bond yields on Slovenian government debt were quickly approaching the levels of Cyprus when it asked for a bailout.
While Bratusek was able to stave off rumors of a bailout for the present time, her statement suggests that Slovenia is not completely ruling it out in the future. According to an article published this week in The Economist, the economic prospects of Slovenia are looking dim as GDP is expected to fall by 2.1% this year and unemployment is expected to rise to 9.7%. In addition to these economic projections, concern centers around Slovenia's banking system, where the majority of the banks are state-owned.
Despite Bratusek's statement, the Slovenian PM has major incentives to reform her nation's banking system. If Slovenia were to ask for a bailout, it would be one of the first countries to become subject to the EU's Macroeconomic Imbalances Procedure. This EU law focuses on early detection of economic imbalances, preventative and corrective action, and strict enforcement. Failure to comply with the MIP can result in a fine equivalent to 0.1% of GDP-- a great burden for debt ridden countries.
Much of the success of the Slovenian economy depends on the economic strength of its Euro Zone neighbors; exports account for 50% of Slovenia's GDP, according to The Economist. Only time will tell if Slovenia will be able to resolve its economic problems.
Well I think it may also help if people in Slovenia have more control over their spending. I don't know what the situation is, but like we have discussed in class the situation in Greece was impounded by heavy borrowing by the population. My views on bailouts aren't too friendly, so I hope it doesn't get that bad.
ReplyDeleteIt is interesting that the PM is so concerned with rebuking such criticisms. Things look pretty bad for the country as is. Perhaps part of the PM's insistence comes from a desire not to scare away investors. If they started to get spooked, it is likely interest rates on Slovenian debt would rise and this would cause the country to collapse.
ReplyDeleteSlovenia's economic problems seem to be the source of bad loans made to large corporations that are now unable to pay them back. "Unlike many countries, which overdosed on housing debt, Slovenia had a problem with corporations financing operations through high levels of debt" (Seattle Times). Slovenia's former prime minister approved austerity measures to reduce the deficit but the new prime minister appears to be more concerned with Slovenia's economy growth than reducing the deficit. "Government debt was only 52.7 percent of GDP last year and is set to rise to 69 percent by the end of 2014. Compared with countries with their own currencies like the United States, and certainly compared to countries actually in crisis like Greece, that’s a pittance." Though as we have mentioned in class there is no set line for when a country's debt will send them into an economic crises and it is different for every country. It would probably be in Slovenia's best interest to reduce their debt load before it becomes a problem.
ReplyDeletehttp://seattletimes.com/html/nationworld/2020640481_sloveniacyprusxml.html