After Cyprus, Euro Concerns Over Slovenia, a Former Euro Star

LONDON - Will Slovenia be the next Cyprus

So intense has been the speculation that the small Alpine state will be the next euro zone member to need a bailout that its top officials have been prompted to put out statements saying everything is fine.

“We will need no bailout this year,” Uros Cufer, the finance minister, said on Friday. “I am calm.”

That followed an assurance by Alenka Bratusek, the new prime minister, that Slovenia would not need international aid and was “capable of sorting things out itself.”

The statements were in response to a sharp rise this week in Slovenia’s potential borrowing costs as bond investors priced in the high risk of a default.

Analysts have been on the lookout for the next domino likely to fall since Cyprus was forced to accept the stringent conditions of its European partners for a €10-billion, or $12.8-billion, bailout last weekend.

My colleague Landon Thomas Jr. identified the risk in early February, when he wrote that Slovenia was one of two small euro zone economies, along with Malta, that should be causing international investors to lose sleep.

It has been a familiar tale of real estate bubble and bad property loans that have forced the government to prop up Slovenia’s struggling banking sector and other ailing companies.

The country’s banks are burdened with about €7 billion of bad loans, the equivalent of 20 percent of Slovenia’s gross domestic product.

The International Monetary Fund has said Slovenia will need to raise at least €3 billion this year to fund the budget, debt repayments and an overhaul of the banking sector. That will involve the state raising more money by June, when €1 billion of government debt comes up for renewal.

Slovenia, wedged between Italy, Austria, Hungary and Croatia, was described as the poster child of the new Europe when it joined the European Union in 2004, 13 years after declaring its independence from a disintegrating Yugoslavia.

Famed for its picture-postcard scenery, the high standard of living and education of its two million inhabitants, and its modern infrastructure, Slovenia was regarded at the time as the most promising of 10 new European Union entrants.

“As nation-states go, Slovenia is the equivalent of a quiet but comfortable middle-class suburb,” Samuel Loewenberg wrote for Slate.

From 2009, two years after it adopted the euro, the country entered a downturn marked by a stalled construction boom, a spate of ill-advised takeovers, and the accumulation of billions of euros of bad debts by the country’s banks.

“Slovenia’s fall from grace has cast doubt on an economic transition that was once the envy of Central and Eastern Europe,” my colleague Stephen Castle wrote from Ljubljana, the capital, last September.

Ms. Bratusek, whose center-left coalition government took office only on March 20, faces the prospect of the economy shrinking by two percent this year.

The government put off issuing more bonds on international markets as its borrowing rate tripled last week. Mr. Cufer said it could afford to wait.

“We do not have to go to the markets in these overheated times due to Cyprus,” Reuters quoted him as saying. “We can wait for the markets to calm down, for the investors to feel comfortable about our action and then we will tap the market.”

Slovenia could not be compared to Cyprus, he said. It was a view echoed by Petra Lesjak, a Ljubljana asset manager, in a Financial Times guest blog this week.

“Its banking sector - equal to about 130 percent of G.D.P. - is relatively small and its depositor base is mostly domestic or from within the E.U.,” she wrote.

“But the level of public debt is rising and a rescue of the banking sector could increase it to 59 percent of G.D.P. in 2013,” Ms. Lesjak added. “After years of delay and dithering, time is running out.”