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Slovenia Debt Rating Cut By Fitch

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The state of the European financial crises took another hit in the first week of August as Fitch Ratings downgraded the debt rating of Slovenia, making it the sixth member of the Euro region (following Greece, Ireland, Portugal, Spain, and Cyprus) to experience major credit hits. The reason for the Slovenia debt rating cut by Fitch has much to do with the nation’s banks and their available capital, saying that too little access to cash sunk the Balkans-bordering nation from staying at “A” level. As such, Slovenia’s debt has been downgraded to “A-” level with a negative outlook. The S&P rating, by contrast, was cut down to “A” on August 3rd, several steps below its highest grade of “A+”. These actions took a toll, as the cuts will be joining Moody’s downgrade of “Baa2”, only the second-lowest investment score available.

Fitch Ratings remarked that the inability of Slovenian banks to commence a recapitalization plan meant serious consequences for the national credit. Given that the nation has struggled in recent years to acquire funding and loans, it poses a major problem for the government should a national attempt at financial recapitalization be launched.

Somewhere between two and three billion Euros worth of currency would be needed to raise Slovenia’s credit rating, amounting to adding on approximately twenty percent of the nation’s GDP to its existing national debt. While Slovenia’s debt is relatively low at less than fifty percent of its GDP, further credit issues threaten its health if no financing can be made available. Without the ability to borrow at

Why has Slovenia found itself in this problem?

GDP per Capita in Slovenia - Real GDP per Capita in SloveniaLike many other have-not nations within the Eurozone, a relatively small labor force puts them at a disadvantage when competing with the larger economies, especially their neighbors of Austria and Italy. Slovenia’s economy depends on exports above all else but their current trade deficit has resulted in a contracting economy, shrinking by more than one percent in 2012. European markets are less interested in Slovenian goods given their own respective debts and banking concerns, while secondary industries (such as tourism) are not lucrative enough to make up the difference. Though the nation is on a per-capita basis one of the richest in the entire European continent, the threat of a debt rating downgrade will leave the nation struggling to regain a good credit rating in order to attract investors who, at this time, have little reason to put their money in the nation’s banks.

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