A struggling economy, political instability, rising unemployment and overall anxiety over future has prompted economists and analysts to set alarm bells ringing over Slovenia‘s fate in the coming months. With Cyprus on the brink of an economic meltdown, all eyes are now on Slovenia, which could follow suit soon. The Slovenian government meanwhile has introduced a slew of austerity measures to handle the situation, which are hurting the dwindling economy further.
Cyprus recently became the fifth Euro Zone member to get financial assistance from Brussels to save its crumbling economy. The country agreed to adopt measures that will help release a 10 billion euro international bailout. The International Monetary Fund (IMF), however, cast some aspersions as it commented that times are indeed challenging and the Cypriots will have to put in great efforts.
The government is expected to significantly increase taxes on income and stabilize finances and the banking sector. The Slovenian banking sector, which is currently facing tough times, has been likened to its Cyprian counterpart, prompting analysts to forecast a similar announcement soon.
The banking sector has been the biggest cause of concern for the Slovenian government so far. Loan losses are running high and the challenge is to fund the banks somehow and bring the situation under control. Notably, the banking sector was growing rapidly until 2009 when the economic crisis hit Europe and has since struggled to stay afloat.
According to economists, Slovenian banks need around 4 billion euro to remain solvent. To address the problem, Prime Minister Alenka Bratusek has laid more emphasis on austerity measures that are expected to revive the banking sector. According to her, the situation can still be handled well because the Slovenian banking sector is not as large as the Cyprian one.
Many economists believe that a combination of austerity measures, recession faced by key trade partners and efforts to overhaul the banking sector will lead to a 1.9% drop in the country’s GDP. Moreover, growth is expected in 2014, although it will be quite weak and unlikely to bring a cheer among Slovenians.
The recent upheavals in the Cyprian upheavals have also triggered a sense of fear among depositors in Slovenia. A recent opinion poll clearly shows that 48% of respondents believe an economic bailout will be necessary to bring the economy back on track. It further shows that 42% of respondents do not think their savings are safe in local banks.
As the debt continues to pile, Slovenia is still hoping that it will be able to save its small economy by undertaking some corrective measures. With its GDP, which was under 55% in 2012 Slovenia is one of the smallest EU members and that means it can recapitalize itself for now.
The country is up for another challenge in June when it has to return 900 million euro to its investors. With these developments posing threat to smaller European countries, bigger nations like France and Britain are also pressured to undertake stringent measures to avoid crisis.