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Slovenian bailout 'is inevitable': Second tiny EU state caught in fallout from Cyprus banks crisis
- Government bond rates in Slovenia soared from 1.2per cent to 4.26per cent
- The IMF said the country's banks were 'under severe distress'
- Slovenia needs to find £2.5bn over the course of the year to keep running
- Cypriot banks refusing to release UK pension payments to expat Britons
- President of Cyprus says there is 'no intention' of leaving the eurozone
By Peter Campbell and Tim Shipman
PUBLISHED:13:10 EST, 29 March 2013| UPDATED:20:25 EST, 29 March 2013
The Cyprus bailout crisis could lead to yet another country’s banks being put in peril.
The cost of borrowing in Slovenia tripled last week amid market fears for the future of eurozone countries.
Government bond rates soared from 1.2per cent to 4.26per cent, putting the future of the country’s nationally owned banks at risk.
People waited in line outside the Laiki Bank branch in Nicosia, Cyprus, today as economists feared Slovenia would be the next country in need of a bailout
‘Slovenia is now inevitably heading to a bailout, the eurozone shot itself completely in the foot following the Cyprus issue,’ said Tim Ash, head of European research at Standard Bank.
The International Monetary Fund said the country’s banks ‘are under severe distress’ due to the size of bad loans sitting on their books.
‘The country has lost competitiveness since joining the euro in 2007 and it’s leading to slow economic collapse,’ said analyst Lars Christensen from Danske Bank. ‘The banks need recapitalisation, and it is not easy to raise money in this climate.’
Slovenia, with a population of just two million, is expected to see output slump by two per cent this year. The next test of international confidence in the country will come early this summer.
The state will need to raise more money in early June, when £766million of government debt comes up for renewal.
It will have to find a total of £2.5billion to keep on running.
Its banks, many of which are which are state-owned, are unable to take on large amounts of government debt, meaning the money will have to come from outside sources. Analysts are sceptical it will be able to raise the cash in the wake of the £8.5billion Cyprus bailout.
This will provoke fears EU authorities will launch a tax raid on Slovenian bank accounts, just as they did in Cyprus.
Cyprus was yesterday still reeling from its bailout plans.
British expat pensioners are struggling to pay for food and bills as banks refuse to release their UK pension payments. Former NHS nurse Diane Ameur-Zaimeche, 71, said of her £400-a-month pension: ‘I’ve been told all money being sent to Cyprus is being sat on by the government’s Central Bank.’
Banks in Cyprus opened for normal business for a second day but with strict restrictions on how much money people could withdraw while the International Monetary Fund said Slovenia's banks 'are under severe distress'
President Nicos Anastasiades said yesterday risk of bankruptcy had been contained and Cyprus had no intention of leaving the euro.
Slovenia’s recently elected prime minister Alenka Bratusek insisted her country should not be compared to Cyprus. ‘Our banking system is stable and safe,’ she said. But the IMF said: ‘The new government should promptly address bank restructuring, corporate sector debt overhang and governance and involvement of the state in the economy.’
Economists polled by Reuters said Slovenia and Spain were now the two eurozone nations most likely to need a bailout.
Analysts are increasingly sceptical Slovenia will be able to raise £2.5billion to keep running in the wake of Cyprus's £8.5billion bailout
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First is Cyprus, next is Slovenia. I wonder what country will be the next target of economic crisis.
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