Just days after Slovenian President Borut Pahor gave an interview to a German magazine in which he said that his country would not become the next Cyprus, Slovenia dropped its recent attempts to issue bonds ahead of Moody’s cutting the country’s debt rating to junk.
The news represents yet another upheaval from the recession plagued Eurozone, and comes on the heels of the Cyprus bank-bailout crisis that had markets worried in March.
Slovenia’s state-run banking system is beset by some 7 billion euros of bad loans, a problem the country’s new Prime Minister says can be dealt with internally, and without a loan from the European Union.
The month old government of PM Alenka Bratusek has been under pressure from EU officials to implement reforms in order to deal with the problem, and plans to announce a reform plan next week that will include austerity measures and privatizations, as well as isolating problematic loans in bad banks.
The decision to cancel the sale of the bonds in light of the downgrade, particularly when $6 billion in bids for 5 and 10 year bonds had already been received, is likely to rekindle already-existing fears that Slovenia will need to turn to the EU for a bailout, notwithstanding the many assurances to the contrary.
It remains to be seen how the country’s own home grown austerity program will be received, particularly with its tumultuous political climate, a situation that can only become worse in the event that austerity measures have to be implemented at the behest of an entity that is perceived as foreign, such as the EU or the International Monetary Fund.
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