Long lauded as the European poster child for successful post-communist liberalization and integration, Slovenia has felt the brunt of the global and European economic crises.
After gaining independence from Yugoslavia in 1991, Slovenia entered a period of economic prosperity, political stability and growth in human development. The Slovenian example was often used by pro-European Union politicians across the continent as an affirmation of their view that formerly communist states could not only prosper, but prosper within the European Union.
Slovenia in 2007 became the first ex-communist country to join the eurozone, and all seemed well until the prolonged global recession struck. The country’s tendency to resist even modest privatization after independence (up to 80 percent of the national economy is owned or controlled by the state) and its export-dominated economy made it particularly susceptible to damage from the world’s financial downturn.
As a result of Europe’s financial woes, Slovenian banks (mostly state-owned) have amassed €7.5 billion of defaulted loans. Equivalent to almost 25 percent of the country’s entire gross domestic product, these bad loans are partly a result of money lent to state-owned businesses by banks that were themselves owned by the Slovenian government. This banking emergency, combined with a 2013 first-quarter unemployment rate of 11.1 percent, has led many to predict that Slovenia will follow Spain and Ireland, among others, as recipients of European Union financial bailouts.
Allegations of cronyism with respect to the dispensation of these loans and corruption charges against former center-right prime minister Janez Janša led to his minority government’s ouster via a no-confidence vote in the Slovenian parliament. These events paved the way for the formation of a center-left governing coalition headed by current prime minister Alenka Bratušek.
Prime Minister Bratušek, insistent that Slovenia has the capability to solve its problems internally and refusing to request a bailout, has determined that austerity measures mandated by Brussels will form the bulk of her government’s reform and recovery agenda.
Despite a general Slovenian reluctance to relinquish business ownership to business interests from larger, wealthier states, the parliament in Ljubljana has approved the sale of 15 partially or completely state-owned enterprises. These include the state’s 72 percent ownership stake in national airline Adria Airways, its 62 percent share of the Ljubljana airport, and its majority ownership of telecommunications company Telekom Slovenije. A 2 percent Value Added Tax increase to 22 percent was implemented in July, and government budget cuts necessary to reduce the deficit to 2.5 percent of GDP by 2015 are in the works.
On the European front, the Bratušek government’s privatization and budget constriction efforts have been praised and encouraged by German Chancellor Angela Merkel. Widely known for insisting that ailing European economies implement austerity-based recovery programs, Chancellor Merkel has underlined her support for the Slovenian economic roadmap. The German leader also sees the process as having possible strategic economic benefit for Germany, cleverly suggesting that German companies in particular would be interested in purchasing some of the assets that will be sold by Slovenia’s government.
National pride and the systemic, not to mention political, instability that bailouts seem to cause have left Slovenia with privatization and austerity measures as their sole options. Germany’s influential support for the government’s financial revitalization scheme and a recent slowdown in the decrease of consumption are good indicators that Slovenia’s plans will indeed be implemented.
Barring future popular or political upheaval in Ljubljana, the small alpine state will proceed with unprecedented post-communist privatization of major state-owned firms. Whatever the prospects of the Slovenian and European economies, the business world should be on notice: Slovenia is on the market.