The verdict is in: Slovenia is not Cyprus

The verdict is in: Slovenia is not Cyprus
Both Slovenian Prime Minister Alenka Bratusek and European Commission President Jose Barroso have firmly refuted that Slovenia will require an EU aid package.

Slovenia's banks, downgraded by Fitch last Friday, spooked analysts and promted many to ask if Slovenia would be the next Cyrpus, and require a 'bail-in', and taxing of depositors accounts.

"It is a completely different situation in Cyprus and in Slovenia," said Barroso.

Slovenia is "strong and stable" resonated PM Bratusek.

Both leaders delivered a positive outlook for Slovenia at the Organiziation for Economic Co-operation and Development (OECD)  eurocrisis meetings in Brussels, both believing there is "no indication" Slovenia will require an aid package. However, Barroso did warn the country on the brink of a banking crisis to push through recapitalising reforms.

The organization suggests Slovenia’s government should restructure its most troubled banks, privatizing state-owned banks such as Nova Ljubljanska Banka and Nova Kreditna Banka Maribor, and wind up non-competitive banks.

The OECD wasn't impressed with Slovenia's mismanaged, mostly state owned, banking regime, and estimate the sector has up to €7 billion of 'bad debt'. A report issued Tuesday warned the country's national debt could exceed and double the GDP.

Slovenia’s newly elected government pledged an ambitious austerity plan, but the fiscal position is not yet sustainable. The government is also struggling to support banks hit by recession and burdened with bad loans worth about one fifth of the country’s economic output.

Economists polled by Bloomberg believe that Slovenia’s insolvency, deepening at the fastest pace in eurozone after Cyprus, could force the country to become the sixth euro member to need aid. The situation with Slovenia will be considered on April 12 in Dublin during the next euro group meeting.

However unlike Cyprus mostly domestic depositors will suffer the major losses.

“Since the Cyprus resolution, Slovenia has been in the spotlight,” Bas van Geffen, an analyst at Rabobank International in the Netherlands told Bloomberg. “The country’s smallness is now clearly a drawback in the post-Cyprus era, which has fueled speculation that the country might be the next Cyprus.”

The IMF released its World Economic Outlook Tuesday at 2:30pm as the European Commission met to discuss Slovenia's at risk banking debts. Image from http://www.oecd.org

Slovenia accounts for 0.4 percent of the euro economy. Slovenia joined the single currency bloc in 2007. Its economy looked better than the European common currency area for most of the past decade before the recession and collapse of the construction sector hit its banks, Bloomberg reports.

“Overall with a packed field seemingly competing to get the next bailout, there is clearly a danger of donor fatigue when it comes to bailouts. Slovakians for instance went through years of austerity just to reach the eurozone, only to be knocked for more money to pay for higher pensions in Greece than Slovakians receive! However, the biggest problem is with Germany. Elections are looming and voters are growing tired of being the lender of last resort to a Mediterranean zone they feel (rightly or wrongly) do not share their common desire for thrift and diligence,” independent financial analyst Patrick Young told RT.

The crazed hubris of the eurozone leaders in trying to sustain the Euro project must sooner or later run out of steam.

“The Eurozone is also at a political crossroads. The Germans and others are keen to clamp down on financial centres without understanding how all industry needs investment to flourish. There is a ridiculous canard currently about the evils of banking size compared to the economy - the problem is how banks are managed, not their size and all Eurozone politicians have been guilty of encouraging reckless lending policies as well as breaking core Eurozone rules which exacerbated the whole Euroshambles that is now creating Europe's lost generation,” Mr Young said.

Problems aggravating in Portugal

News from Portugal signals another economic downturn despite the EU €78 billion bailout program. 

The full package of austerity measures adopted two years ago to secure the bailout did not turn around Portugal’s economy to growth. The country is facing a widening budget deficit to 6.4% of GDP. Despite hopes for a recovery, the economy is expected to shrink by a further 2.3% this year. Unemployment level is also remaining high at almost 18%.

In the light of a failing austerity program, Portugal is now facing another sort of crisis. Portugal's Prime Minister said a court decision overturning some of the government’s planned austerity measures means he will have to look for new ways to raise as much as €1.3 billion from this year's budget to keep the bailout program afloat. The measures, including writing off a 14th month of salary for civil servants and retirees, as well as cuts to unemployment and sickness benefits were ruled unlawful by the Supreme Court.

PM Pedro Passos Coelho addressing the nation on Sunday evening stressed that the situation in the country can be seen as nothing but a "national emergency". 

According to the PM social security, health, education and public enterprises would have to be cut in order to meet the EU terms and avoid a second bailout.

"Any departure from the program's objectives, or their renegotiation, would in fact neutralize the efforts already made and achieved by the Portuguese citizens," the European Commission warned in a statement.