Slovenia: Govenor of National Bank demands “Change of Mentality”

The Governor of the Slovenian National Bank (SNB) emphasized that the country needed a new approach in regard to the management of economy and the state since delaying crucial measures has done nothing but endangered the country’s economy further.

Jazbec, who is also a member of the European Central Bank's (ECB) Governing Council, stated that foreign partners such as the EU Commission and the ECB only intended to help by implementing strict rules to avoid international bailout. "In spite of the state Slovenia is in, no one is forcing us into a bailout," he said. "Everyone is supporting us towards our trying to solve the problems alone." Furthermore he emphasized that the country was a member of the European Union and the Eurozone by its own free will and therefore had to keep to the regulations.

Slovenia is still able to avoid bailout while it is on course to report the banks’ stress test results next months, Jazbec said on Tuesday. However, € 7.9bn (US-$ 11bn) in non-performing loans in the banking sector, which is mostly state-owned, could caluse the banking industry to break down “unless we react wisely … in the right way,” he announced and disapproved the country not having solved the problems like most other Eurozone member countries in the first wave of the financial crisis since rules are becoming even stricter now. Jazbec emphasized that only eight other countries worldwide had a higher share in state-owned banks, among them India, Cuba and Iraq while the European Union and the ECB have been calling for a privatization of the banking industry.

As the estimated NPL ranges between 20 percent and 30 percent of GDP, analysts argue that the country will not be able to avoid a bailout. This year, the country´s budget deficit will reach about 8.0 percent of GDP. Prime Minister Alenka Bratusek admitted that the costs for rescuing the banking sector are still unknown. Nevertheless, Bratusek emphasized that the state budget has sufficient capacities to absorb the banking crisis.

Due to the banking crisis and the wrong economic policy in the years before 2008, Slovenia will be still contending with its harmful legacy for some years. In the boom period from 1998 to 2008, Slovenia did not improve the competiveness of its industry. By contrast, the country focused on consumption and construction. In this period, Slovenian banks pursued an aggressive lending policy. However, most funds were provided for consumers, the tourism industry and the construction industry.

Jazbec pointed out that Slovenia needed to save its banking system as a first step and then continue to consolidate public finances and secure the political support for these measures as a first step.