Euro ministers urge troubled Slovenia to act

Eurozone finance chiefs urge Slovenia to act swiftly, call on Italy to keep reducing deficit

Associated Press
Euro ministers urge troubled Slovenia to act
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Cyprus' Finance Minister Haris Georgiades, right, smiles as he talks with Eurogroup President Jeroen Dijsselbloem at the start of an Eurogroup meeting at the EU Council in Brussels on Monday, May 13, 2013. (AP Photo/Geert Vanden Wijngaert)

BRUSSELS (AP) -- European finance ministers on Monday urged Slovenia to move swiftly in addressing the problems in its banking sector and get its public finances under control in a bid to avoid the nation from becoming the bloc's sixth member to require a bailout.

"The Slovenian government has to take swift and decisive action," said Jeroem Dijsselbloem, who chairs the meetings of finance ministers from the 17 European Union countries that use the euro. "First and foremost Slovenia has to restore trust in its banking sector," he added.

Markets have started worrying over the state of Slovenia's shaky banks, which are reeling from a burst real estate bubble and unpaid property loans. The tiny Alpine nation accounts for only 0.4 percent of the eurozone's overall 10 trillion euros economy, but the lenders' troubles are large enough that investors fear the government might face huge costs rescuing them.

While its overall public debt is well below the 27-country EU average, the country of 2 million is already facing difficulties refinancing its debt, forcing it to implement budget cuts and tough reforms.

Slovenia presented its reform plans to the ministers and top EU officials gathered in Brussels, trying to convince them that it can handle the situation on its own without requiring emergency loans and joining the bailout club of Greece, Portugal, Ireland, Spain and Cyprus.

Besides budget cuts, tax hikes and other measures Slovenia presented, the government is also setting up a so-called bad bank to take shaky loans and investments off lenders' hands.

German Finance Minister Wolfgang Schaeuble voiced confidence that the government will implement the program through without requiring outside assistance, especially since there was no alternative to the painful measures.

"The relevant countries have to push through difficult adjustments one way or the other," he said ahead of the meeting. "By now, the insight that rescue programs are not exactly invitations for comfort is also well-known," he added.

The EU Commission, the bloc's executive arm, will assess the proposals by the end of the month.

The Commission's top economic official, Olli Rehn, said after the meeting "it is too early to say whether the program provides a sufficient answer to the problems the country is facing at the moment."

The ministers in Brussels also met their new Italian counterpart, Fabrizio Saccomanni, who briefed them on his coalition government's economic and financial policies.

Italy has the eurozone's third-largest economy after Germany and France. Markets have greeted the new centrist administration with relief after February's inconclusive elections, but the finance ministers left no doubt that they expected the reforms of former Prime Minister Mario Monti's government to be continued.

"We called on the new government to maintain the pace of fiscal consolidation," Dijsselbloem said. "We were reassured to learn that the government intended to pursue an ambitious structural reform agenda aimed at raising Italy's growth potential and addressing the country's imbalances," he added.

Italy is saddled with a huge debt — about 127 percent of its annual economic output, second only to Greece. While its economy was growing, the country was able to manage its debt. However, a leading international economic body forecasts Italy's economy will shrink by 1.5 percent this year and grow only 0.5 percent in 2014. That will push the country's debt up to 131.5 percent of annual GDP, according to a forecast by the Organization for Economic Cooperation and Development.

The Eurogroup of finance ministers also approved the next batch of 7.5 billion euros ($10 billion) in bailout loans for Greece. Dijsselbloem said "Greece has made good progress" in meeting the agreed reform targets, but the disbursement of the second part of the tranche will be conditional on making further headway on improving tax collection, liberalizing closed professions and shrinking its public sector.

The ministers did not, however, release more aid for Portugal because they were still waiting for Lisbon's latest austerity measures to be cleared by the country's parliament.

They also took stock of the progress in Cyprus, which had dominated the eurozone's agenda early this year until an agreement was reached on a messy 10 billion euro bailout in April.

The bloc's permanent bailout fund, the European Stability Mechanism, transferred an initial 2 billion euro tranche to Nicosia Monday.

"The loans granted by the ESM help to maintain financial stability in the euro area and buy time for Cyprus", said ESM chief Klaus Regling. "This time enables Cyprus to undertake the reforms necessary to rebuild its economy on a sustainable basis."

The ministers will be joined by their counterparts from the 10 EU nations that don't use the euro currency on Tuesday. The wider group will discuss Europe's way forward toward a full banking union and how to step up the fight against tax evasion.

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Juergen Baetz can be reached on Twitter at http://www.twitter.com/jbaetz

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