LJUBLJANA, Slovenia – Slovenian officials have a message for the world: Don't panic — we won't be the next to fall.
The tiny European Union member is trying to convince its people and foreign investors that it won't be the next in line for a banking system collapse and a messy international bailout.
"We are absolutely no Cyprus," says new Slovenian Prime Minister Alenka Bratusek. "We don't need help. All we need is time."
But time is running out for the Balkan state, once considered an East European success story and a model for the rest of the region on how to build a post-communist economy. With few specifics from leaders on a rescue plan, some economists are skeptical they can live up to their promises.
Slovenia desperately needs fundamental reform of its banking and economic system if it is to avoid the same fate as Cyprus, a fellow member of the 17-strong group of European Union countries that use the euro. The island nation was forced to ask for a bailout from its fellow eurozone countries, the European Central Bank and the International Monetary Fund when it could not afford to support its bloated banking sector.
Now the fear is Slovenia could face the same fate. While its overall public debt load is well below the EU average, the country of 2 million is facing difficulties refinancing its debt. That has fueled fears that Slovenia — which accounts for 0.4 percent of the eurozone's overall economy — could become the sixth eurozone nation to require assistance.
At the core of Slovenia's problems are its state-run banks, which control about 60 percent of the country's banking sector.
The Alpine country's banks have been on a lending spree for years, loaning money to unprofitable state companies or privileged officials who used the cash to buy the firms they ran, using the state assets as collateral.
Many such businesses have now collapsed or have huge debts. A recent report by the Organization for Economic Cooperation says that the equity of the state banks has been "virtually wiped out." As much as 15 percent of all loans are now non-performing, the third-highest ratio in the eurozone, the Paris-based group said.
"In Slovenia, tycoons have stolen everything," Mico Pavic, a retired construction worker said at Ljubljana's main Presern square, where a Gypsy folk band created a relaxed atmosphere at odds with the country's situation. "I have been here since 1960, and I have not seen a bigger crisis."
Bank officials say that despite fears of a financial sector collapse, there has been no rush on banks to pull out cash from private saving accounts. That is primarily because Slovenes — despite a recent spate of anti-government protests — traditionally trust their state, which has provided them in the past with good welfare and standards of living.
"We are not some kind of a tax haven for global billionaires, nor does our banking sector constitute the bulk of our GDP," Bratusek said in an opinion piece in the Wall Street Journal, apparently referring to Cyprus where the bulk of saving accounts belonged to wealthy Russians. "Not all is rosy in Slovenia, but that is true for all of Europe."
Cyprus agreed last month that in return for a 10 billion euro bailout loan it would contribute a further 13 billion euros — mainly by breaking up one of its banks and forcing haircuts of up to 80 cents on the dollar for anyone with more than 100,000 euros in a deposit account.
Janko Medja, the head of Nova Ljubljanska Banka, Slovenia's largest troubled state-run bank, said Slovenia will avoid a similar deal because of the comparative size of their banking sectors.
Slovenia's banking sector is worth about 130 percent of the country's GDP of about 36 billion euros. The sector in Cyprus, by contrast, had swollen to eight times the nation's annual economic output.
The core of the Slovenia's problems is the failure to privatize the economy, including the state banks, Medja said.
"It is safe to say that the problem for this house, with NLB having a 30 percent market share in Slovenia, accumulated over the past 10 years, and we are having a very tough job of restructuring it," Medja, who took over late last year to try stabilize the bank, said in an interview.
"It will take a couple of years to get to a rebound situation," he said, adding that the bank will initially need some 400 million euros ($524 million) for immediate recapitalization. Economists estimate that NLB needs some 2.5 billion euros ($3.2 billion) for a complete bailout.
"We in the NLB are proceeding as if there will be no need for a bailout," Medja said.
But the Slovenian banks' troubles are large enough for investors to fear the government might face huge costs rescuing them. That has pushed up the government's borrowing rates in bond markets to near the levels Cyprus faced on the eve of seeking the bailout.
"Recent events have underlined our view that the Slovenian government will struggle to finance itself this year despite the small size (relative to GDP) of its troubled banks and public debt," Capital Economics Ltd., a London-based analyst group, said. "To avoid a bailout, the government will need rapidly to put in place a credible plan to tackle the banking crisis."
The government is setting up a so-called bad bank to retake shaky loans and investments off banks' hands and is working "literally day and night" on fixing the financial sector, Bratusek said.
"The first priority of our government is the stabilization of our banking system," said Bratusek, whose center-left government took over two months ago after the fall of previous center-right Prime Minister Janez Jansa over corruption allegations. "But that alone won't help our economy, as we also have to also stabilize our over-indebted companies."
Slovenian economic analysts are unimpressed by the new government actions taken so far.
"It is still possible that Slovenia will escape the bailout, but it depends on government measures," analyst Joze P. Damjan said. "The problem is that we still don't know what those measures are."