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Slovenia Still Rules Out Calling for Rescue

Published: November 10, 2012; 19:10 · (Vindobona)

The Slovenian government tries to prevent to be bailed out by the EU and IMF by all means. However, experts fear that Slovenia is the next candidate for the safety net.

Slovenia Still Rules Out Calling for Rescue / Picture: © Vindobona.org

According to the Slovenian Minister of Economics Radovan Zerjav, the government does not see any reason to request for assistance by the EU. Reinhold Mitterlehner, his Austrian counterpart commented that the situation in Slovenia is better than many expect.

The economic forecasts for Slovenia had to be revised several times already. This year, the Slovenian economy will shrink by 1.8%. Next year, Slovenia will not leave the recession behind. The Slovenian National Bank expects a negative growth of 0.7%. This is also due to the strict austerity measures implemented by the government in Ljubljana. After a budget deficit of 3.7% this year, the deficit is planned to be cut below 3.0% of GDP. In 2015, the budget should be balanced.

The main problem remains the banking sector. Bad loans are expected to range from € 4.0bn to € 8.0bn. In order to ease the credit crunch, the Slovenian government has established a bad bank which purchases risky assets from Slovenian banks. At the end of 2011, about 18% of the loans were non-performing.

The Slovenian budget is not affected for the time being. The government has provided guarantees of € 4.0bn for the bad bank. Besides that, publicly owned companies will be bundled at a holding company. These measures should facilitate privatizations.

Nevertheless, the U.S. rating agency S&P threatens to downgrade Slovenia again. What is more, S&P has put Slovenia on “credit watch negative”. According to S&P, Slovenia has to implement its reforms quicker. The creation of the bad bank and substantial privatization steps would be the most pressing reforms, S&P says. According to S&P, the reform measures are endangered of a popular vote on the bad bank. Minister Zerjav already explained that the popular vote will not take place. However, the Slovenian trade unions announced to protest against the labor market and pension reforms.

Gunter Deuber at Raiffeisen Research is cautiously optimistic. “Slovenia is an open and competitive economy. With some reforms, Slovenia may expect substantial growth rates in two years again.” Deuber does not think that Slovenia needs financial aid now. “However, this does not mean that there is no danger at all. Now, Slovenia has to implement reforms.” On the occasion of a meeting with Mitterlehner, the Slovenian Minister of Economics stressed that Slovenia has improved its competitiveness with the lower corporate tax. This year, the corporate tax decreased from 20% to 18%. Moreover, the country plans to reduce the tax rate to 15%.

Austrian companies operating in Slovenia are not directly affected, Deuber says. Last year, 700 Austrian companies were engaged in Slovenia. Austrian exports to Slovenia reached € 1.6bn last year.