Slovenia is not Cyprus, but Slovenia is the second ‘S’ in PIIGS(S)

We used to think that the trouble countries in the euro zone were what has been called the PIIGS (Portugal, Italy, Ireland, Greece and Spain) and then suddenly Cyprus comes along and blow up. So now everybody is looking for the ‘next Cyprus’ rather than the next Spain or Greece.

So now all eyes are turning to Slovenia as it is again and again has being mentioned as the ‘next Cyprus’. I would, however, strongly argue that Slovenia is not Cyprus. That might sound good. Unfortunately it is not Slovenia, which is the ‘outlier’ – it is Cyprus.

I think it is really simple – the countries in the euro zone which are in the biggest trouble – risk of sovereign default and potential banking crisis – are the countries that have seen the largest drop in nominal GDP since 2008. The graph below illustrates this very well. It shows the relationship between the change in NGDP from 2007 to 2012 and the change in public debt ratios (debt/NGDP) in the same period. Surprise, surprise the countries that have seen the biggest increase debt ratios happen to be the PIIGS and those are also the countries that have seen the biggest drop in NGDP during the same crisis.


But notice Cyprus. Cyprus hasn’t really seen a major drop in NGDP and the increase in the debt ratio is not alarming. Cyprus is the ‘outlier’ – despite of banking crisis and a potential sovereign debt default the economy has been holding up pretty well (so far!). Cyprus is in trouble not because of the Cypriot economy as such, but because of a few banks’ exposure to Greek sovereign debt (this is likely a result of moral hazard). That is the story Cyprus, but it is not the story of Slovenia.

It is therefore wrong to say that Slovenia is Cyprus. Unfortunately it might be worse – Slovenia is the second ‘S’ in PIIGSS.

PS For those who are unable to differentiate between Slovenia and Slovakia – you have no reason to worry about Slovakia. The country is doing remarkably well.

Leave a comment


  1. Petar Sisko

     /  March 27, 2013

    Slovenia also has problems with two banks. And these banks are state owned, so they used them to extend credit to state companies.Now thay have a plethora of problems starting with big public sector, but also with big state companies and banks. This is why I cant understand how people in Croatia just cant get over privatization of croatian banks. It was basically a very good move. Even though NPL share is rising, the banking system is still pretty stable and profitable.


  2. Ravi

     /  March 28, 2013

    Interesting. I was looking at some of the same data this morning. Two points: (1) Some (not me) might look at your chart and conclude that the rise in debt/GDP caused the fall in NGDP! (2) What metrics are you using to assess Slovakia? It looks to me like NGDP is $20-25b off pre-crisis trend and unemployment is 14.5%. Or did you just mean relative to other SEE countries? The SEE region in general does not look good at all…


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