Slovenia struggles to avoid EU bailout

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Slovenia's government has put forward a set of economic reforms to quell fears it could become the next EU member to apply for a financial bailout. But will it be enough to keep the country afloat?

"I started my business in the former Yugoslavia, when the situation was far more difficult than anything in Slovenia or Europe right now."

It is a grey rainy day in the small town of Ajdovscina, but Ivo Boscarol is still in a buoyant mood.

His ultra-light aircraft company, Pipistrel, founded in the final years of communism, has become a global leader - exporting around the world.

"We've always had to work hard," Mr Boscarol says as he stands next to a new four-seat aircraft, the Panthera, which uses conventional, hybrid or electric engines.

"We're always planning ahead."

'Need to adapt'

But Slovenia's national economy has been far less innovative, and far too reliant on the status quo.

"For years some of the big companies in this country have been lent too much money on easy terms," Mr Boscarol says.

"Still, I'm optimistic that we can recover."

But the overall mood in Slovenia is far more uncertain, and the whispers persist: will this be the next country in the eurozone forced to ask for a financial bailout?

The new government says no - and it has delivered a national reform programme to the European Commission in Brussels, designed to restore confidence.

The programme includes a rise in value added tax (VAT), cuts in the public sector wage bill and an ambitious privatisation programme.

Among the state-owned companies to be sold are Slovenia's biggest telecoms operator, its second largest bank, the national airline and Ljubljana airport.

"When you're a small economy in the European Union you always need to adapt more than others," says Finance Minister Uros Cufer.

"That is something that is clear to us. We need to be more flexible, and more responsive to the climate around us.

"We have to act quickly, and we need to get back to growth."

'Too vague'

EU officials are currently crunching the numbers in the government's plans, and will issue recommendations at the end of this month.

As ever, implementation will be a key issue.

"The government will have to prove that this time it actually means it. The past record on privatisation hasn't been good," says Saso Stanovnik, chief economist at Alta Invest in Ljubljana.

"And the banking asset plan is too vague for the moment - too small-scale in terms of how much capital injection banks will actually need."

Like in Spain, bad loans in the banking system are at the heart of Slovenia's economic woes.

Too many cheap loans were handed out after entry into the eurozone, and many of them were based on political connections alone.

It was Balkan-style crony capitalism, creating far too cosy a relationship between politics and big business.

And now the country is starting to take note. Thousands of people took to the streets in popular demonstrations that began late last year, helping to force the resignation of the previous, conservative, government.

"People are turning towards politicians and what they are finding is a lot of corruption, a lot of problems, a lot of inefficiency," says N'toko, a Slovenian rapper who played a leading role in the protests.

Unemployment in Slovenia is far lower than in Spain, for example, or Greece. But even here disaffected youth are losing faith in government.

"It's come to the point where we are starting to point fingers and say you need to take that responsibility," N'toko says.

Markets impatient

But there is no clear consensus about what the solution should be - a familiar theme across the eurozone.

There is a divide between those who want to go further and faster to meet European demands for reform, and those who wonder why Slovenia is selling off its national assets to the highest bidder.

"We definitely feel like things are being taken from us and southern Europe is being turned into some kind of province," N'toko says.

"We still do have a bit of that social state mentality where actually these things do belong to us, they belong to the people, however passe that might sound."

Trade unions admit that they only agreed reluctantly to government proposals to trim the public sector wage bill. They feared the alternative could be a full-scale bailout, and the imposition by outsiders of even harsher conditions.

But the financial markets are equally impatient.

"We're still quite along way from the cliff, but moving in the wrong direction," Mr Stanovnik of Alta Invest argues.

"So we need to change. Because if we don't change it is only a matter of time before we end up somewhere like Greece."