Slovenia will not be the next Cyprus, say officials

Slovenia will not be the next euro member to need a financial rescue as it can afford to wait for lower borrowing costs before issuing new debt, senior economic official said yesterday.

The new centre-left government was widely expected to raise money on financial markets shortly after taking office on March 20th but has not done so because Slovenia's borrowing costs have soared due to the turmoil in Cyprus.

Investors are betting that Slovenia, another tiny member of Europe’s currency zone with a population of just two million, will also need a rescue to keep its banks and economy afloat.

Last week, Cyprus became the fifth euro member to receive financial help from Brussels in a bid to survive a regional debt crisis.

While Slovenia's banks are also in trouble, the sector is smaller than in Cyprus and it does not share the exposure to toxic Greek debt.

Finance minister Uros Cufer said his country does not need help.

"We will need no bailout this year," he said. "I am calm."

Like many other euro zone members, Slovenia is in recession, with slowing exports to its neighbours and high unemployment.

It last issued a bond in October last year before the conservative government collapsed over a corruption scandal in January and was this month replaced by the new centre-left cabinet of prime minister Alenka Bratusek.

Analysts were expecting a swift debt issue from the government, but yields have jumped. The 2021 bond yield rose to 6.06 per cent yesterday from 5.45 per cent a week ago.

The International Monetary Fund says Slovenia will need to raise at least €3 billion this year for the budget, debt repayment and the bank overhaul, and former prime minister Janez Jansa has said Slovenia must issue debt by June.

But Mr Cufer said Slovenia, a mountainous country on the Adriatic neighboured by Austria, Italy, Croatia and Hungary, was not in a hurry.

"We do not have to go to the markets in these overheated times due to Cyprus," he said. "We can wait for the markets to calm down, for the investors to feel comfortable about our action, and then we will tap the market."

He said the government would launch a "bad bank" by September that would take over a part of €7 billion in bad loans from the three main banks, all of which are in majority or large state ownership.

The banks would then require up to €1 billion in a capital injection, which Mr Cufer said Slovenia could raise later this year via a bond, part of the total €3 billion in planned debt issuance for this year.

Reuters