Ahead of a possible bailout for banks saddled with bad loans, Slovenia has opened the door for privatization and austerity measures.
Saddled with billions of euros in bad loans, Slovenia could soon follow Greece, Ireland, Portugal and Cyprus, becoming the fifth Eurozone country requiring an EU bailout. Slovenia’s financial situation will be one of the topics of discussion at an upcoming Eurogroup discussion next Friday.
Der Spiegel reports that Slovenian Finance Minister Uros Cufer is expected to give a report on his country’s financial situation to his Eurozone colleagues. The financial situation in Slovenia has been deteriorating for several months.
The heart of the problem remains the banking sector. The Wall Street Journal reported earlier this summer that Slovenia’s three largest banks, all government-controlled, suffer from a combined €7 billion or so in nonperforming loans, equivalent to about 20 percent of the annual economic output for the small Central European country.
This has exacerbated the effects of the recession, making it more difficult for Slovenia to bring its budget deficit in line with the EU-mandated maximum of 3 percent of gross domestic product.
Signs of economic woes have led Slovenia to liquidate two small private banks, Factor Banka and Probanka, agreeing to put up €1.3 billion to guarantee the banks’ liabilities. The central bank governor said the measures were enacted in order to help avoid a run on the country’s other banks. These account for only 4.4 percent of the country’s total bank assets, but it may be enough to shore up the country’s ailing financial sector.
Treating the early warning signs could help Slovenia avoid the fate of Cyprus, a Eurozone country that experienced a run on its banks earlier this year. In Cyprus, things have only begun to stabilize after the country accepted a €10 billion bailout.
“I think if they stay strictly on course — and they’ve said that want to do that; they’ve supplied two small banks with capital over the weekend — then they’ll manage without it,” said German Finance Minister Wolfgang Schaeuble.“So as long as Slovenia itself says they can manage it, we should encourage them in that.”
As a former Soviet bloc country, Slovenia also maintains a large public sector. In an effort to avoid a future bailout, politicians have also approved the privatization of 15 companies in an effort to raise money and reduce government spending.
Privatization follows one of the predictable austerity dictates of the European Central Bank, which has led to led to numerous public sector layoffs, slashes to government welfare programs, higher taxes and an overall decrease in the standard of living for Europeans, notably those living in Greece.
Despite receiving a bailout, countries like Greece remain mired in economic crisis.
In Greece, a country that continues to be the poster child for economic distress in the Eurozone. USA Today reports that unemployment has risen across Greece in recent months, with the overall rate reaching 27.9 percent in June. For those under the age of 25, unemployment has reached a staggering 58.8 percent.