Slovenia, the first former Communist nation in the euro zone , is facing a typically capitalist dilemma: whether to protect creditors of big banks. Rising loan losses resulting from a housing bust and a second recession in two years have left a hole of about 7.5 billion euros ($9.9 billion) at Slovenia-based lenders, investment bank Keefe Bruyette & Woods estimates. That’s a lot for a 35 billion-euro economy: A bank bailout would push government debt above 70 percent of economic output.
Even after a successful domestic debt sale two weeks ago, the country may need assistance from the European Union, and holders of bank bonds, including the most senior creditors, could be forced to take losses, according to Raoul Ruparel, head of research at London-based Open Europe. Such a bail-in, which would be the second in the euro zone, after Cyprus, risks deepening divergence in the monetary union by keeping borrowing costs higher in economically weak nations. “It’s not impossible, but it’s very unlikely that Slovenia can manage to pull off the bank restructuring without any EU money,” said Ruparel, who tracks economic and political developments in the region. “And when it turns to official funds, the conditions will most likely include a bail-in of creditors, especially because banks are the main problem.” ‘Heavily Exposed’ Moody’s Investors Service cut Slovenia’s debt rating two levels to junk today, citing potential bank-rescue costs increasing government debt as the main reason for the decision. The country may have to ask for financial aid from the EU as its borrowing costs become unsustainable, the ratings firm said. “Moody’s expects bank asset quality to continue to deteriorate given the weak economic environment,” the firm said in a statement. Delays by the new government to establish a bad bank “suggest that the sovereign remains heavily […]
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Slovenia Bank Rescue at 20% GDP Means No Escaping EU Aid
Slovenia Bank Rescue at 20% GDP Means No Escaping EU Aid
Slovenia Bank Rescue at 20% GDP Means No Escaping EU Aid
Slovenia Bank Rescue at 20% GDP Means No Escaping EU Aid
Slovenia Bank Rescue at 20% GDP Means No Escaping EU Aid
Slovenia Bank Rescue at 20% GDP Means No Escaping EU Aid