The government of former Prime Minister Janez Janša fell last February following a non- confidence vote. The vote was called by the largest opposition party SD as Janša refused to step down after corruption allegations earlier this year. The leader of the SD, Alenka Bratušek, was then charged with the task of forming a new majority, which would be headed by her after being installed on 20 March.
Impact on country risk
Slovenia is currently facing a severe banking crisis as the (largely state- owned) sector has been experiencing losses for the last two years. The sector is also highly undercapitalized according to standard ratios and is grappling with 7 bn EUR of bad loans (around 20% of GDP). Struggling to avoid an international bailout for its banks, the former government had started to restructure the sector, through the creation of a “bad” bank, and was making plans to privatize. The arrival of a new coalition (stemming from left-leaning parties) creates uncertainties as to the way the banking crisis will be tackled. Although the crisis in Cyprus has brought some light on the difficulties encountered by the Slovenian banking sector, the situation of the two countries is quite different. First, the Slovenian banking sector is much smaller in size, as its total assets amounted to only 180% of GDP in 2011, which is much less than the euro countries’ average, and much less than the 700% of GDP in Cyprus by the end of 2012. Also, deposits of non-residents are significantly lower than in Cyprus. Finally, the reasonable public debt level theoretically gives Slovenia more room for manoeuvre to directly recapitalize its ailing banking sector, although high and rising yields on sovereign bonds in a context of excessive public deficit and political crisis could hamper this procedure and finally also push the country to request a bailout.
Analyst: Florence Thiéry, email@example.com