Slovenia’s 10-year government bonds slid for a fourth day, with the yield topping 7 percent for the first time since the nation adopted the euro in 2007, as the debt crisis in Europe roils markets.
The yield rose to 7.14 percent at 1:05 p.m. in Ljubljana, according to Bloomberg data. Slovenia, which holds early elections next month, was cut by Standard & Poor’s, Moody’s Investors Service and Fitch Ratings on the government’s collapse, the poor economic outlook and a weak banking industry. The former Yugoslav republic is also a victim of its “proximity” to Italy, which is struggling to fend off an investor crisis of confidence.
Bostjan Vasle, Slovenia’s chief economic forecaster, says Slovenia Must Tackle Debt as Recession Looms
Slovenia’s next government must cut public spending as the likelihood of the nation sliding into a recession because of the euro region’s debt crisis increases, according to the government’s forecasting institute.
Slovenes will vote on Dec. 4 after Prime Minister Borut Pahor’s government was toppled in a no-confidence vote on Sept. 20. Its failure to cut public spending and the rejection of the pension changes in June prompted credit rating companies to lower the country’s assessment.
The export-driven economy is faltering as demand in Europe weakens after governments embarked on spending cuts to allay investors’ concern over debt sustainability. Gross domestic product weakened to an annual 0.9 percent in second quarter from a 2.3 percent pace in the first three months.
“The key challenge for the new Cabinet will be to consolidate public finances,” Bostjan Vasle, the institute’s director told reporters in Ljubljana today. “We can’t rule out the possibility economic growth will be negative in some quarters as there are visible signs of an economic slowdown in Europe.”
It might be easier for the Slovenia to leave the EMU as it has not been bailed out by EFSF, IMF. Slovenia’s joining to EU was more a reasonless step and since its inception Slovenia has not gained much from it. Rather, its been more bad than good.
Leaving Euro would be a hard task if Slovenia waits more. There are problems which need to be dealt very cautiously while leaving Euro. For example, if someone has got a mortgage loan in Euro and his country disintegrates from EMU, then he will have to pay in the local currency which would mean that he will have much difficult time paying back his mortgages. Certainly, leaving Euro won’t be easy for any country but being with Euro would lead to nowhere either.
