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Thursday, April 11, 2013 6:03 PM

Spotlight on Slovenia as Debt Pressures Mount

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Inquiring minds are watching economic activity in Slovenia following an official denial regarding bailout possibilities. For denial details, please see Slovenia Rules Out Bailout; Translation: "Slovenia Bailout Coming Right Up"

Slovenia Unemployment and Youth Unemployment

Slovenia Unemployment Rate Chart

Debt Pressures Mount

Bloomberg reports Slovenia Set to Test Debt Appetite as Financing Pressure Mounts.
Slovenia’s government failed to raise 100 million euros ($131 million) at a debt sale this week. Now it’s shooting for five times that amount next week.

With bond yields approaching levels that prompted bailouts of other euro nations, the government will offer 500 million euros of 18-month Treasury bills on April 17. The International Monetary Fund estimates Slovenia will need to borrow about 3 billion euros this year to repay maturing debt, aid banks and finance the budget.

The debt sale will test the willingness of investors abroad to finance Slovenia’s economy as a banking crisis strains the budget, government bonds plunge and soaring default risk threatens to make the country the euro region’s sixth bailout recipient after Cyprus last month. The largest local lenders are state owned and are struggling with rising bad debt.

“Unless we see strong non-resident participation, this will be an orchestrated Pyrrhic victory, increasing pressure on Slovenia and thereby raising its chances to lose the international market access,” Andraz Grahek, a partner at Capital Genetics in Ljubljana, said by phone yesterday. “This would expedite an application for some kind of support.”

Slovenia, whose 35 billion-euro economy is the fourth smallest in the euro area, fell into the crossfire after European creditors and the IMF forced losses on bank depositors in a 10 billion-euro aid package for Cyprus.

The cost of protecting Slovenian debt against non-payment using credit-default swaps rose to a six-month high of 370 points yesterday, according to data compiled by Bloomberg.

The yield on Slovenia’s dollar-denominated benchmark bond maturing in 2022 is hovering close to record levels after the Finance Ministry missed its target in this week’s auction of Treasury bills by almost half as borrowing costs rose. The 2022 bond’s yield stood at 6.17 percent yesterday, approaching the record 6.38 percent reached on March 27.

While Slovenia is less reliant on banking than the Cypriot economy, default risk jumped after the Alpine country missed its target at the April 9 debt offering, reigniting concern it may follow Greece, Ireland, Portugal, Spain and Cyprus in seeking an international bailout.

The situation is “serious” and it’s up to the government to “give very clear signals” to avoid a bailout, Banka Slovenije Governor Marko Kranjec, who’s also a member of the European Central Bank’s Governing Council, said yesterday in Dublin, according to Market News International.
As I said, a bailout is on the way. Only the timing and details are in question.

Mike "Mish" Shedlock

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