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Slovenia could avoid full-blown bail-out: IFF
Slovenia would benefit from EU intervention that stops short of a fully fledged bail-out, according to the influential Institute of International Finance (IIF).

The country, widely feared to be next in line for a eurozone bail-out, is well-placed to become the first to receive so-called "precautionary support", according to a report published late on Tuesday.

Measures would involve the EU rescue fund purchasing Slovenian government debt to prevent its borrowing costs from becoming unsustainably high.

Such a move would undo the damaging effects of the botched Cypriot bail-out, which saw Slovenia's cost of borrowing soar to record highs amid fears it would meet the same fate as the Mediterranean island.

The report argues that, while Slovenia's own plans to avert financial meltdown, including privatisation of state assets and bank restructuring will go some way to reducing the risk of bail-out, that accepting ESM assistance would go further to bolster bond market sentiment.

Slovenian politicians have insisted they remain calm despite the threat posed by rising borrowing costs, which could prevent the nation securing the estimated €3bn needed to fund its budget, debt repayment and bank restructuring plans. Uros Cufer, finance minister, said last week he was confident that borrowing costs would retreat in coming months.

His remarks were echoed on Tuesday by Igor Luksic, president of the second biggest party in the centre-left coalition, as the Adriatic nation's cost of borrowing rose again, after a warning from the Organisation for Economic Co-operation and Development that it faced a "severe banking crisis". Tuesday's rise came hot on the heels of a surge in borrowing costs at the end of March, as investors fled following a suggestion that the Cypriot bail-out set a blueprint for future rescues by Jeroen Dijsselbloem, head of the Eurogroup of eurozone finance ministers.

The country came under new fresh fire on Wednesday when the European Commission highlighted Slovenia and Spain as having "excessive" economic imbalances, obliging the nations to declare by the end of April how they intend to address problems.

Slovenian premier Alenka Bratusek, keen to allay fears the country would not be lumbered with painful bail-out conditions from the EU or IMF, stressed that the eurozone minnow "is capable of sorting things out itself."

But the IFF was at pains to emphasise that precautionary support would be far less onerous than a fully-fledged bail-out, indicating that such a move could pave the way for Slovenia to become the first nation to benefit from the European Central Bank's outright monetary transactions - a radical measure unveiled by Mario Draghi in September as part of his pledge to do "whatever it takes" to preserve the euro.

"Even at €10bn, a precautionary facility would be considerably less, relative to GDP, than the regular stability support loans agreed for Greece, Ireland, Portugal, and now Cyprus," said report authors Jeffrey Anderson and Jessica Stallings.

"Much less could do the trick, however, given the widespread perception that agreement on an MOU giving access to primary market bond buying from the ESM would also give access to secondary market purchases of bonds maturing within three years by the ECB via the OMT.

"A year's financing needs, equivalent to €3.5-4bn, may well suffice."

They added that while such an arrangement would entail some EU surveillance, it would "certainly be less onerous and more palatable politically than if Slovenia is forced to seek fully-disbursing support" from the EU, warning that a bail-out "could prove unavoidable later this year, should the government not be able to access markets adequately on its own, unsupported by the ESM".

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