Insight: How eurozone backwater Slovenia became its latest liability

Sun Apr 21, 2013 10:36am EDT
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By Michael Winfrey and Marja Novak

LJUBLJANA (Reuters) - Igor Luksic, leader of the Social Democrats in Slovenia's ruling coalition, disagrees with the European leaders who say his country should privatize its three biggest lenders to avoid the misery of another bailout in the euro zone.

The political science lecturer who has lined his office with portraits of Martin Luther King, John Kennedy, Mahatma Gandhi and Che Guevara said his party would fight the move.

"We have always been against selling banks," said Luksic, whose party is the second largest in Prime Minister Alenka Bratusek's government.

The banks in the Alpine former Yugoslav republic of 2 million people are a key reason why it showed up on the agenda of Friday's Dublin meeting of the bloc's 27 finance ministers on preventing a new eurozone debt crisis.

"Slovenia is facing serious challenges," EU Economic and Monetary Affairs Commissioner Olli Rehn told Reuters on Thursday, calling for decisive action to restructure and recapitalize the banking sector among other urgent measures.

Financial market pressure on Slovenia has lain bare how this tiny euro zone state achieved Europe's smoothest transformation from a Communist economy to a market-based model: it only went half way.

While former Soviet satellite states like Poland and the Czech republic privatized big firms, slashed budgets, and pushed through other reforms, Slovenia held on to public assets, avoided cost cuts and repeatedly bailed out state banks after escaping the violent breakup non-aligned Yugoslavia in 1992.

That has now become a liability for Bratusek who, after last month's chaotic rescue of Cyprus, is scrambling to stop a spike in Slovenia's borrowing costs and convince investors it can change its ways and avoid insolvency.   Continued...

Slovenia's national flag flutters next to Nova Ljubljanska Banka (NLB) building in Ljubljana, July 23, 2012. REUTERS/Srdjan Zivulovic