Sunday, November 13, 2011

Eurozone Crisis FOTD

. Sunday, November 13, 2011

Will Slovenia be the first eurozone country to default? It's in big trouble, as Slovenian economist Luka Gubo writes to Mish:

1. Slovenian debt to GDP ratio has doubled since 2009 (one of highest growing on the planet) 
2. Our banking system is on the brink of collapse. Biggest bank (Nova Ljubljanska Banka - NLB) is owned by the government and almost all the money it has lent is sub-prime (much worse than in US up to 2007/08) or it was lent politically to chosen people who now can't pay the debt back. NLB has 15% bad loans (payments being late more than 90-day) and the number is getting higher. 
3. Our housing market is frozen. Prices are not falling because no one is buying or selling. Most of the construction companies are bankrupt and they owe lots of money to banks. (percentage of loans that payments are late in construction sector is mind boggling 25%! - and is even growing!) 
4. Government has recapitalized NLB with 250 million €. It will probably do it again with 400 million. I have calculated that if the bank was for sale it would be sold for no more than 400 million €! So taxpayers have already 250M and will pay another 400M for what? For saving some banker's ass because of his bad decisions? (And they call the bank "Slovenian silver"!) 
5. There is no interest in Slovenia to leave EU. Moreover, it may be better for incompetent bureaucrats from EU to run the monetary system because things would be much worse if run by incompetent Slovenian bureaucrats.  
6. Slovenian banks will need to borrow at least 5 billion € in 2012 and get about 1 billion € of fresh capital. Do you know someone who will give them the money? I truly hope it will not be the taxpayer.
7. When the banks start selling real estate, the market will collapse 20-30% in a year or two. That will further deteriorate bank balance sheets and the problems will be much worse. 
8. Our labor market is totally inflexible and unemployment rate is getting higher (currently at 11.5%). 
So if someone says to you that Slovenia is healthy just tell him the facts. Slovenia is not healthy. It has a brain-tumor that is getting worse.


Daniel said...

This is a good FOTD. However, Slovenia is hardly news-worthy (even where I am in Hungary) mainly because they're small and less integrated. That doesn't mean that default would be painless; just that it probably wouldn't shock the system. Tourism plug:They sure have some beautiful mountains-Triglav national park is the Yosemite of Europe.

Eurozone Crisis FOTD
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