Slovenia isn't Cyprus, but that doesn't Mean it's Not in Trouble

Leo Tolstoy wrote that all happy families are alike, but each unhappy family is unhappy in its own way. Much the same is true of economies. Maybe that was what EU Commission President Jose Barosso had in mind when he said recently that, “it is a completely different situation in Cyprus and in Slovenia.” Different, but in many ways no less dangerous. For those struggling to keep up with the ever-evolving euro crisis, here are some of the key ways in which the impending crisis in Slovenia differs from—and resembles—the others.

The macroeconomic context

As in many other countries, the crisis in Slovenia, which now centers on the banking system, has developed against a background of broader macroeconomic problems. Not long ago, Slovenia’s economy was doing well. The country was one of the ten that entered the EU in 2004. Like others in its cohort, it initially enjoyed rapid economic growth. The following chart, which compares Slovenia’s economic growth since 2000 with selected other countries, shows that before the global financial crisis, Slovenia looked a lot like Poland, one of the EU’s biggest success stories. Since the crisis, it has looked more like Portugal.



What accounts for the shift from success story to problem case? Although many factors were at play, two were especially significant. >>>Read more