ECB ‘interested’ in bailing out Slovenia

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The European Central Bank is interested in Slovenia applying for aid from the European Stability Mechanism (ESM), the eurozone's bailout mechanism, according to German business daily Handelsblatt.

Slovenia has been in recession since last year and is struggling to avoid an economic bailout. On Friday Slovenian officials said they would liquidate two small banks to ensure the financial stability of its banking system.

The ECB declined to comment on the Handelsblatt report, published on Wednesday (11 September), which gave no further details on how any ECB interest in Slovenia applying for help had been expressed, or what it consisted of.

In the article published on Thursday, the newspaper, citing unnamed sources, also said the holes in Slovenian banks' balance sheets would be discussed at a meeting of the Eurogroup of eurozone finance ministers in Vilnius on Friday.

Local banks struggling with €7.5 billion of bad loans, worth more than a fifth of national output, have fuelled speculation that Slovenia may seek a bailout in the coming months.

Eurogroup head Jeroen Dijsselbloem has asked the Slovenian finance minister to report on the situation of the banks, according to unnamed eurozone sources cited by the newspaper.

It added that this was due to the government's announcement last week that it would close Factor Banka and Probanka banks.

Asked to comment on the report, European Commission spokesperson Simon O’Connor, said press articles should not be taken at face value. Slovenia's financial situation remained “manageable” for the time being, he said, provided the government acts swiftly to address the challenges identified in the country-specific recommendations adopted by EU heads of state and government last July.

He said the Commission was in close contact with the authorities in Slovenia, and that the EU executive was supporting them in the implementation of the recommendations.

In autumn, the Commission will assess Slovenia’s progress on three fronts: fiscal consolidation, structural reform to remove bottlenecks to growth in the economy and addressing the problems in the financial sector, O’Connor continued.

Pressed by journalists, the spokesperson rejected suggestions that the Commission assessment had been diluted to avoid upsetting the upcoming German elections.

Estimates suggest a bailout for Slovenia, which joined the EU in 2004 and the eurozone in 2007, could run to €5 billion, mostly for shoring up its banks. Although small by the standards of Greece or Ireland, a bailout would be politically awkward when the eurozone is also wrestling with financial woes in Spain, Italy, Portugal and Cyprus.

A bailout would tough on Slovenia, forcing the government to make more spending and job cuts, but under international supervision.

  • 22 Sept.: Germany holds general elections

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