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Slovenia: Will The ESM Be Able To Help A Country In Crisis?

ESM (European Stability Mechanism)ESM (European Stability Mechanism)

The ESM (European Stability Mechanism) is the bailout fund for European countries in crisis. The global economic crisis affected many countries by plunging them into severe financial trouble. The 2008 economic crisis left Slovenia with billions in bad loans. The real estate escalation seemed to be a precursory sign for this country as well as others before the economic disaster hit.

Current Financial Situation

The current political situation is certainly volatile as citizens of Slovenia call for change, but has certainly simmered from what it was in 2012. The necessary move to isolate bad assets and clean up the banking sector necessitated a bad bank action to be run by the state. This move was initiated in September 2012. Using public money to reverse the banking sector may prove to be a bad move resulting in deeper debt. However, the need to implement extreme measures to reduce public spending is critical.

Road to Financial Recovery

Outsider suggestions for recovery include a transition to the government basis of Italy and Greece, technocratic. A technocratic government is one that is based on technology experts possessing all decision-making power. This transition would allow for the necessary capital boost that is needed for the financial institutions. Also, it would allow for the implementation of the austerity measures.

The recapitalization of the banking sector is not only significant but also vital for this transition to take place. Privatization is one option for the banking sector to make this move. Allow the ownership of businesses and/or non-profit organizations to transfer from the government to private citizens.

Some steps have been taken to recapitalize the banking sector. However, it is not going to be enough without assistance from the ESM. The projected ESM assistance is possible by the middle of 2013. The euro-zone supervisor position is necessary for the ESM to directly re-stock banks. This position has yet to be filled.

This may prove to be quandary for countries like Slovenia. One situation that can result is that even though the euro- zone supervisor will put the power in the hands of ESM to directly provide recapitalization, it will be based on a new crisis. Any existing crisis would fail to be eligible for assistance.

Another potential outcome would be that any financial crisis prior to the supervisor position being filled would remain the responsibility of the nation. The ESM would fill any new capital needs. This would be a problem for Slovenia.

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