Slovenia's Troubled Banking Sector

In an attempt to put to rest rumors about the health of Slovenia's banks, Slovenian Prime Minister Janez Jansa denied July 4 that Ljubljana would seek a bailout for its banking sector. In the past few months the Central Bank of Slovenia and the European Banking Authority have repeatedly called for the recapitalization of Slovenia's banks. According to different estimates, the country's banks need between 3 billion and 5 billion euros ($3.7 billion to $6.2 billion) in recapitalization — an amount equaling about 10 percent of Slovenia's gross domestic product (GDP).

Given Slovenian banks' need for recapitalization, Ljubljana will likely request a banking-sector bailout during the second half of the year. Slovenia's banking sector is small, meaning that such a bailout would not be disruptive for the European Union, and Ljubljana will likely secure it without encountering major problems. However, an EU bailout would require Slovenia to apply further austerity measures, something that has proved difficult for the country. This requirement could threaten the survival of the fragile Slovenian government.