The Slovenian government is poised to publish the results of an external audit of its banks, which will say how much cash the government must inject to keep them afloat. We’ve heard from sources that the euro zone member needs as much as 5 billion euros to recapitalize largely state-owned banks.
The central bank said on Tuesday that sufficient funds were available to an international bailout but, while the euro zone might breathe a sigh of relief, Ljubljana’s problems are far from over. A fire sale of state assets will be triggered and the banks are so embedded into the Slovene economy that deleveraging will cause great damage.
The government may raid its own cash reserves of 3.6 billion euros, hit junior bank bondholders to the tune of 500 million euros and, if necessary, tap financial markets. But all this may just be delaying the inevitable for a country that is expected to wallow in recession until 2015. Prime Minister Alenka Bratusek has called a cabinet meeting and a news conference is tentatively scheduled for 1000 GMT.
European Central Bank chief Mario Draghi testifies at the European Parliament at some length today. With inflation forecast to remain well below target for the next two years, pressure is growing to act and Draghi has said a number of options were possible, and ready to be deployed.
Most – particularly full-on QE – are unlikely. The most likely – a repeat of the splurge of cheap, long-term money thrown at banks last year – has now been saddled with a new caveat.