Slovenia Next For Bailout

Slovenia Government Debt to GDP Ratio

Slovenia Won’t Need Bailout, Premier Says –

I’m getting pretty good at this eurocrisis thing.  Today I read the headline above and knew instantly that it meant the exact opposite; Slovenia will need a bailout.  Maybe there is a job for me in Brussels.

The common currency is uncommonly good at causing problems.  Slovenia will be the 6th country to require assistance.

The good news is that Slovenia has a rather low debt to GDP ratio, so it can afford to take on more debt to resolve its banking crisis.  The bad news is that it will not be able to issue more debt by itself.  The Cyprus situation has spooked the markets, and investors are decreasing exposure to iffy Eurozone outposts like Slovenia.  Note the recent rise in rates for Slovenian debt:

Slovenia 10 Year Bond Yield

Cyprus must issue €1.5bn to finance standard government spending, and a bank bailout will cost at least €1.5bn more.  This is small change to the Germans, but then again so was Cyprus.


You know I was thinking more about the amount of money that Slovenia claims that it will need to clean up its banks.  €1.5bn seems low.

Non-performing loans are 19% of the size of economy, .19 *  €38bn gives us a gross amount of about €7.3bn.  Remember that NPLs always rise considerably from the initial estimates, so €7.3bn will serve as a best case scenario.

Even if Slovenia deploys every trick available to it, it must still account for the €7.3bn  (and rising) capital hole punched out by those bad loans.  Buyers of Slovenian debt are fleeing, and it is only a matter of time before it must request help from the eurozone.


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