Brussels has warned Slovenia and Spain to take "urgent" action to correct major imbalances in their ailing economies. Slovenia has become the latest eurozone country to face speculation that it needs a bailout.
The European Commission on Wednesday said that the financial sector in Slovenia faced substantial risk due to corporate indebtedness, calling on Ljubljana to "halt the rapid buildup" of bad debt in its banks.
The warning came in a report which reviewed economic stability in 13 EU countries. Brussels also put Spain on notice, calling on Madrid to speed up its reform program, amid rising unemployment and an economy still in the grips of recession.
The economies of the four nations currently receiving full-blown bailouts – Ireland, Portugal, Greece, and Cyprus – were not reviewed in the report.
On Tuesday, the Organisation for Economic Cooperation and Development (OECD) issued its own report urging action in Slovenia.
"Restoring the banking sector is the most urgent priority," the OECD wrote. “Slovenia faces risks of a prolonged downturn and constrained access to financial markets. Additional and far reaching reforms are needed as soon as possible to head off such daunting outcomes."
Call for precautionary credit
Meanwhile, the Institute for International Finance (IIF) called on Tuesday for European authorities to grant Slovenia a line of credit in order to reduce the risk that Ljubljana would have to apply for a sovereign bailout later. The IIF represents 450 of the world’s largest banks and played an instrumental role in Greece’s international bailout program.
"Even at 10 billion euros ($13 billion), a precautionary facility would be considerably less, relative to GDP, than the regular stability support loans agreed for Greece, Ireland, Portugal and now Cyprus," the IFF said in a press release. "Much less could do the trick however."
Slovenia, which joined the eurozone in 2007, was once held up as a role model for new EU members. But during its bond auction on Tuesday, the government was able to raise only 56.1 million euros of its 100-million-euro target.
Despite the mounting concern, Slovenian Prime Minister Alenka Bratusek (pictured above, left) has insisted that her government would resolve the former Yugoslav republic’s economic problems without a bailout.
"Literally, day and night we are dealing with this problem," Bratusek said. "Absolutely we are trying to save our banking system."
slk/kms (AP, AFP, dpa)