Last Wednesday, Slovenian Prime Minister warned that the country might go through the same drama that Greece went through just a few weeks ago. Should proposals to stabilize the country’s balance sheets not get enough votes in Parliament, Slovenia will be forced to ask for a bailout. If that happens, the country would become the sixth member of the Bailoutstreet Boys!
But before I go any further, you should know that Slovenia didn’t always have a tough time keeping its balance sheets in order.
Back in 2007, Slovenia became the 13th country to adopt the shared currency. During the same year, it also won bragging rights by scoring the fastest growth in the euro zone.
However, due to its dependency on its export industries, the country was hit hard by the financial crisis. Since then, the economy has struggled to get its feet under it. In fact, the government has forecasted the 2012 GDP to print a 0.9% contraction to follow the 0.2% decline it posted in 2011 as exports continue to lag.
Of course, budget cuts aimed to cut down its public debt, which has doubled since 2007 at 47.6% of its GDP at 17 billion EUR, also worsen the already-bleak outlook for the economy.
Unfortunately, Slovenia’s problems aren’t just in export industries, but in its banking sector as well.
ECB governing council member and Slovenian central bank governor Marko Kranjec recently admitted that the Slovenian economy was slumping and headed in the wrong direction.
Earlier this week, officials from the Bank of Slovenia pointed out that allowances for bad loans rose by 36% over the first four months of 2012 compared to 2011. Expectations are that the banking sector will post a loss for the third consecutive year.
Meanwhile, Slovenia’s three largest banks all need fresh capital injections in order to meet capital requirements. Government-run Nova Ljubljanska Bank tops the list with recapitalization requirements north of 500 million EUR.
Slovenian bonds are taking a hit as well. Benchmark yields breached the 6.0% mark for the first time in over five months, hitting as high as 6.0155% late last week amid the backdrop of rising Italian and Spanish yields.
Hmmm… deteriorating economic conditions… struggling banking sector… rising bond yields…
Sound familiar? It’s the same sob story that almost every member of the Bailoutsreet Boys went through before finally asking for external funding! The question on every economist’s mind now is whether or not Slovenia will be the next one to join the gang.
I think the answer to that will depend on the Slovenian parliament’s vote next month.
Led by Prime Minister Janez Jansa, members of the Slovenian Democratic Party have proposed a bill that will keep the government from calling referendums on austerity measures. This means that once the government votes on certain austerity measures, the country will have no choice but to adhere to them.
In order for the proposal to push through, Jansa will need a majority vote of two-thirds of Parliament. The problem though is that opposition party Positive Slovenia has said that it will not vote for the bill.
Seems like things are heating up in Slovenia! Hopefully, the country can avoid all these political squabbles so that we won’t have another Greek situation on our hands. For now, all we can do is sit and wait to see how everything unfolds.