Slovenia's prime minister tries to quell eurozone bailout rumours

Bratusek insists government committed to fixing country's banks, struggling with bad debts as double-dip recession continues

Slovenia's prime minister has attempted to quash speculation that she will become the next eurozone leader to seek a bailout, after an influential report warned that the country faces the threat of a "severe banking crisis".

On an official trip to Brussels on Tuesday, Alenka Bratusek insisted that her government was committed to fixing Slovenia's banks, which are struggling with bad debts as a double-dip recession continues.

Bratusek admitted that Slovenia did not face an easy task, but denied that it would be forced to seek international help.

"The new government is determined to do everything in its power to solve its problems by itself," she told a press conference, after holding talks with European Commission president José Manuel Barroso. "We are aware that the banking sector is the number one problem in Slovenia."

The Office for Economic Co-operation and Development is also concerned about Slovenia's banks. It fears the situation could lead to Slovenia being locked out of the financial markets unless Bratusek's administration takes decisive action.

In its Economic Survey of Slovenia 2013, the OECD blamed excessive risk-taking, weak corporate governance and limited regulatory supervision. It warned that non-performing loans already make up 14% of bank balance sheets in Slovenia, which will escalate as the economy shrinks by an estimated 2.1% this year.

"Additional and far-reaching reforms are needed as soon as possible to restore confidence and head off the risks of a prolonged downturn and constrained access to financial markets," said the OECD.

It also warned that the scale of the toxic debt problem in Slovenia may be larger than official estimates have shown.

There are also signs that investors are growing nervous about Slovenia. Borrowing costs rose at an auction of short-term debt on Tuesday, with Slovenia only selling around €56m ($48m) f bonds against a maximum target of €100m.

Barroso, though, said the EC was confident that Bratusek would deliver economic reforms to lead Slovenia back to growth. He also firmly rejected suggestions that Slovenian savers should fear a repeat of the Cyprus bailout, in which large deposit holders are suffering heavy losses.

"It is a completely different situation in Cyprus and in Slovenia," said Barroso, adding that comparisons between the two countries were "abusive".

Slovenia's banking sector is less than 1.5 times its annual GDP, while Cyprus's was about eight times the island's GDP when it sought a bailout last month.

In Cyprus, a parliamentary probe into allegations that some large depositors shifted their funds abroad before the bailout deal was agreed were suspended, after the country's central bank only handed over transaction data for the first half of March. Demetris Syllouris MP called the move "unacceptable."

Fresh data showing that German exports and imports both fell in February added to concerns that the eurozone's downturn deepened during the winter. Christian Schulz of Berenberg Bank said it could show that consumers were becoming more unsettled by the ongoing debt crisis.


Graeme Wearden

The GuardianTramp

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