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Economist Says Slovenia Experiencing Its Own Great Depression

Ljubljana, 08 March (STA) - A young economist claims that what Slovenia's economy is experiencing can be called its very own Great Depression. Labels such as crisis or recession are euphemisms, it makes more sense to describe the situation as economic collapse, Bernard Brscic told the Reporter magazine.

Brscic, a teaching assistant at the Ljubljana Faculty of Economics, recalled the steep drop in GDP in 2009, shrinking of industrial output and investment, and swelling ranks of the unemployed.

Moreover, general government deficit reached almost 6% and debt rose 53% in 2009, making Slovenia a "fiscal patient", he told Monday's Reporter.

All developed economies are in a similar position, but Slovenia's economy contracted at twice the rate of the eurozone average.

"Expansive, indeed unbridled fiscal policy, is intolerable," argues Brscic, who says it is unthinkable that the government is raising spending.

Brscic says the government's economic policy is misguided, "underpinned both by wrong diagnosis and wrong therapy." As a result, the economic crisis will be longer and deeper in Slovenia.

An example of misguided policy, according to Brscic, is the increase in minimum wage. This is an "anti-market measure" which will have fateful consequences for many companies.

Brscic, one of the few economists who had warned about a property bubble, says collapse of the property market is not a disaster per se, but secondary consequences may spread to banks.

The property bubble started inflating as a result of easy credit. Between 2003 and 2008 property prices grew at 10%-15% a year while wages grew only 5% a year.

But what made this imbalance sustainable was the lax crediting policy of commercial banks, he says.

The biggest problem with easy credit was that banks credited projects that did not fulfil even the basic economic criteria and overestimated demand.

"Banks misled investors with cheap and easy credit while investors believed that they can always refinance loans and sell any apartment in Ljubljana," he explained.

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