20 November 2013

FT: Slovenia struggles to avoid EU bailout

Over the coming months, Slovenia will become the laboratory for the latest eurozone experiment in debt restructuring – one that will be heavily influenced by Germany's deep political resistance to underwriting another rescue.

The question is whether a blown-out eurozone economy can fix itself without foreign funds for the repairs. Fitch recently raised its estimate of the system's capital shortfall to €4.6 billion. Slovenia has set aside €1.2 billion of public funds. Bailing in junior creditors will yield about €500 million. The government can also use some of its €3.6 billion of cash deposits. But the margin for manoeuvre is tight.

Alenka Bratušek, Slovenia’s prime minister and the leader of an unwieldy four-party coalition, is standing firm. “We don’t need any outside help, we know how to solve the problems and we are going to do it", she told the Financial Times. “We know best what is good for our country – not somebody from the outside. We are the ones that will have to carry out the measures and we will have to live with our people.”

While similar proclamations were also made by leaders of Portugal, Greece and Cyprus, senior EU officials say Slovenia has a “fairly high” chance of coping alone. Berlin, eager to shield its taxpayers, has urged it to do so. But to some, a full bailout programme, with stringent reform conditions and outside supervision, might be a better option to smash the vested interests that brought Slovenia low in the first place.

Since a wave of street protests helped to sweep her coalition into power in March, Ms Bratušek has passed insolvency reforms, promised some privatisation and pushed through a hugely unpopular property tax on voters obsessed with not just buying houses, but building their own.

But in a difficult recent meeting, Mario Draghi, the European Central Bank president, urged Ms Bratušek to take more decisive action, especially with the banks. “Do we need a nudge from somebody?” asked Mr Jazbec, the central bank governor. “I’m still having my personal dilemma.”

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