Josephine Moulds guardian.co.uk, Thursday 28 March 2013 15.04 GMT
Former Yugoslav republic is struggling with troubled banking sector that threatens to bring down economy
A bank branch in Ljubljana. Slovenian banks have €7bn of bad loans on their books. Photograph: Marco Secchi/Getty Images
Slovenia – famed for not very much – is fast emerging as the latest contender for a euro zone bailout.
Nestling between Croatia and Italy, this country of almost 2 million people may be best remembered in the UK for losing to England at the last football World Cup.
With risotto from Italy, goulash from Hungary and strudel from Austria, its cuisine is heavily influenced by its neighbours. But when it comes to its finances, Slovenia follows more closely in the footsteps of Spain and Ireland, with a large, troubled banking sector that threatens to bring down its economy.
The once-booming former Yugoslav republic was plunged into recession by the economic crisis, which dented demand for its exports of manufactured goods, machinery and transport equipment, chemicals and food. The economy is expected to shrink by at least 2% this year.
But the statistic that has everyone concerned is the €7bn (£6bn) of bad loans on Slovenian banks' books, an amount equivalent to around a fifth of its GDP. The rating agency Moody's has already downgraded Slovenia's second largest bank, and the IMF has estimated that the government needs to recapitalise Slovenian lenders to the tune of at least €1bn.
Perhaps most worrying is the fact that the prime minister, Alenka Bratušek, was moved to say this week that her country would not be seeking a bailout.
Bond investors are not taking any chances. Prices of Slovenian government debt have plunged, sending yields rising by an eye-watering 0.8% on Wednesday alone. Slovenia's 10-year debt is now yielding around 6.15%, not far from the 6.49% yield on 10-year bonds from Portugal, which is already in a bailout programme.
Laurence Wormald at SunGard Financial Systems said: "The evidence suggests that action will be needed by Slovenia within the next two, three months. However, a bail-in is likely to be less drastic than the one in Cyprus, since Slovenian banks are much less leveraged than those of Cyprus. Also Slovenia is different from Cyprus in one crucial respect, in that Slovenia has not created a large offshore banking centre."
After Slovenia, who's next? The research house Capital Economics has its money on Malta and Luxembourg.
Slovenia could be next candidate for euro zone bailout | World news | guardian.co.uk
