Ker sem sit telefonskih klicev in odgovarjanja mailov o dogajanju v Sloveniji in ali bo potrebovala finančno pomoč, je tukaj nekaj odgovorov na najbolj pogosta vprašanja.

Can Slovenia be the “next Cyprus”?

Slovenia is in no respect comparable to Cyprus. The only similarity between the countries is that both have pushed themselves into corner, but for fundamentally different reasons.

Does Slovenia need a ‘bail out’, i.e. an emergency credit to stay afloat?

No, Slovenia does not need a bailout. The macroeconomic fundamentals are more sound than in in most of the EU countries. The problem is that the then government in 2009-2011 has managed the crisis very poorly  – it did not bail out the banks and did not pursue necessary structural reforms. So the problem was delayed to the last minute. It is only the previous government in 2012 that has prepared a bail-out plan for banks, started fiscal consolidation and pushed through two structural reforms (pension and labor market reform). But that government was replaced recently with a new one, which has increased the uncertainty whether it will continue the reforming process or not.

Can you identify main reasons if this were to happen?

The problem of Slovenia is that it needs urgently fresh money from financial markets in order to refinance the outstanding debt and to cover the current budget deficit. It needs some 3 – 4 billion euro in 2013. Bailout plan for banks per se does not require additional money from outside as the government will issue bonds to the bad bank directly in order to guarantee for its liabilities.

Financial markets are a bit nervous due to the situation in Cyprus and due to the political instability in Slovenia. New government was a bit “lost” in the beginning, but it seems now to come to the grips with the situation. I expect that it will follow the major measures proposed by the previous government in terms of financial consolidation and bank bailout. There is actually no other way to proceed. In case the new government would deviate from this course, it would be unable to issue new bonds in May at a reasonable price. Only in case where new government would fail to issue bonds at reasonable price (below 7% interest rates) by the end of May, there would be a case for a need to ask for financial assistance by the EU.

Two Slovenian banks preformed badly in the EBA stress test of 2011. Problems have been long brewing. Just in case, should Slovenes start spreading their deposits over various banks? Are there any signs they started doing this?

Not so far. Three largest state owned banks that are in trouble (NLB, NKBM and Abanka) have a combined market share of 50%, but there were no signs of losing customers or deposits in the past weeks (at least not in big numbers). The situation in Cyprus last week might have changed the perception of people how safe are the deposits in case of a bailout in these three banks. Some people have moved their deposits last week, but it does not seem to evolve into a bank run.

In many countries there are strong emotions when it comes to imposed so called “troika”supervision. What are the Slovenian sentiments when it comes to IMF/ECB/EU interference?

Most of Slovenians still think that “troika” is avoidable. On the other hand, they also see it necessary to resolve the current political stalemate. Measures imposed by troika would be harsh, but I think people would see them as justified since the political elites were unable to stabilize the economy.

What does Slovenia need most of all in the months to come?

Slovenia needs a government with a clear reform course. The government needs to be credible in pursuing the bank bailout, fiscal consolidation and structural reforms to increase the competitiveness of the economy. These are the measures that will convince financial markets to buy Slovenian bonds at a reasonable price. And of course, a bit of luck is needed as well given the situation in other troubled euro countries, such as Italy and Spain. In particular Italy can destabilize the sentiments in financial markets with negative sentiments then spilled over also to Slovenia.

However, I am quite positive (80:20) that the new government will manage to avoid the faith of Cyprus in the first half of 2013.