The in-depth review of the macroeconomic state of 13 problematic EU members, released on Wednesday, found excessive imbalances only in Slovenia and Spain.
The Commission warns Slovenia of high risks in the financial sector stemming from the high indebtedness of companies and the negative consequences of their deleveraging.
Slovenia's situation was initially manageable, but excessive macroeconomic imbalances are mounting, European Monetary Affairs Commissioner Olli Rehn warned at a press conference in Brussels on Wednesday.
To reign in and turn around the negative trend, the country must act decisively and fast, he added, calling today's message "a necessary wake-up call to Slovenia, as well as any other member states that have serious or excessive macroeconomic imbalances".
He said that the recent meetings with Finance Minister Uroš Čufer and PM Alenka Bratušek had made him confident that "the new government is committed to undertake decisive action to bring Slovenia back onto a sustainable path".
Commenting on a possible privatisation of Slovenian banks, he said that given the strong role of the state there is surely room for privatisation, but added that this "is something the Slovenian government and decision makers will have to decide themselves".
As regards the possibility of Slovenia getting a deadline extension for bringing its budget deficit in line with EU rules, the commissioner said that Slovenia had in fact "taken action in recent months as regards certain reforms".
Rehn called the labour market and pension reforms "very important elements for bringing Slovenia's public finances and the national economy on a sustainable path".
He however added "that more work is needed in order to restore confidence in the Slovenian economy and foundation of sustainable growth", which is why he is looking forward to the forthcoming stability and reform programme of Slovenia.
The Slovenian Finance Ministry responded to the report by saying that the government's strategy is fully aligned with challenges raised by the European Commission in the report.
The government is determined to restructure the banking sector and ensure better governance at state-owned companies, including by carrying out privatisation, the ministry said.
In this light, the ministry also pointed to the establishment of the bad bank and the Sovereign Holding as means of fixing the ailing banking system and improving management of state assets as well as facilitating privatisation.
The ministry reiterated statements by leading Slovenian officials in recent days announcing that the bad bank could start with the uptake of bad assets as early as June.
The ministry also said the government was committed to pressing ahead with the consolidation of public finances, whereby it will ensure that measures taken do not adversely impact on economic growth.
The ministry moreover pointed out that the reforms adopted by the country in the past year, including of the pension system and the labour market, represented an important step in dealing with the imbalances.
According to the Commission's report, the risks associated with high-indebtedness of companies are compounded by the strong intertwining of the financial sector with public finances and a business structure with prevalent state ownership.
The report says that a period of uncertainty and legal obstacles in adopting reforms have limited the country's ability to deal with the imbalances and increased its vulnerability in times when EU countries face tougher access to financing on markets.
Rehn also pointed out that Slovenia has had trouble attracting foreign investors and that export dynamics have deteriorated.
The Commission therefore tasks the country with laying out a comprehensive strategy for dealing with the imbalances in its budget and reform plans that it must send to Brussels by early May.
The Commission will review these plans and issue recommendations for action by 29 May. If Slovenia fails to heed the recommendations it could be slapped with a fine amounting up to 0.1% of GDP.
Apart from Slovenia, only Spain was found to have excessive imbalances. The remaining 11 countries reviewed (Belgium, Bulgaria, Denmark, Finland, France, Hungary, Italy, Malta, Netherlands, Sweden and UK) were cleared of excessive imbalances.
The review of macroeconomic imbalances is part of a set of new budget and economic rules that took effect in late 2011.
Source: SloveniaTimes
