Talk politics.

You know what the latest soundbite is around here in Europe these days? "Beware not to follow Cyprus' fate". That one has substituted the earlier one about Greece. It contained the same words, only the name has changed.


Yeah, seems like Cyprus has become a dirty word around these latitudes. And you know what's the next word that comes after you hear "Cyprus"? It's "offshore zone". You'd see people cringing with horror when hearing either of those two words. Including presidents, prime ministers, finance ministers, central bank chairpersons... especially from the smaller EU countries. Many of those are now very busy, trying to convince the public how their little countries are nothing like the sinking piece of rock in the East Mediterranean. And all they're met with is a ton of raised eyebrows and glances full of doubt. The whole exercise doesn't seem to be working for them too well.

The fiasco with the "saving" of Cyprus has now focused the attention on countries like Slovenia, Malta and Luxembourg. They instantly came under scrutiny and suspicion, as soon as the leaders of the Eurozone announced that the reason for all the trouble in Cyprus was its bloated banking system. The chairman of the Eurogroup (the forum of the Eurozone finance ministers) Jeroen Dijsselbloem announced that countries with similar particularities should "act swiftly, before they have found themselves in trouble". And that increased the concerns that the Cyprus precedent could repeat elsewhere. And when everyone started asking themselves who the "next one" would be, the three small countries with giant financial sectors desperately started reciting the "we're not Cyprus" mantra.


But realistically, for the time being the only one to be at least remotely threatened with contracting the Cyprus contagion is Slovenia. The others might be able to escape with some scare and the uncomfortable feeling that they've been lumped into the same club that's not only unable to deal with its problems, but keeps creating new problems of its own. A club where the bigger players are showing no remorse in pressing the smaller ones into a corner, even if they're so eager to preach about solidarity and equality as a European "value". Such is the hypocrisy of politics.

If at the end of February when she took the prime minister post in Ljubljana, Alenka Bratusek was hoping that she'd be given a certain credit of time before starting to feel the heat coming from behind the corner, she's now probably having second thoughts. The amazingly clumsy way that the leaders of the Eurozone dealt with Cyprus has led to a situation where the interest rate on the 10-year Slovenian debt has skyrocketed over 6% (and 7% is considered the critical level where a country's ability to operate on the international markets without foreign aid becomes questionable). Given the fear after the Cyprus deal, where Cyprus was granted aid in return for enormous losses imposed on the larger depositors (over 100,000 euro), the situation in Slovenia could be considered... complicated. And the risk that Slovenia would eventually have to ask the creditor Troika (EU + ECB + IMF) for help, is increasing. It feels like a true domino effect at this point.

And things didn't use to look so bad until just a few days ago. Although Slovenia recently went through a political crisis and a change of government, its debt (about half of its GDP) and the size of its banking sector (140% of the GDP, compared to 800% in Cyprus) were not as frightening, and looked manageable. But after the Cyprus bomb, the moods have changed a lot.

People are feeling anxious. Some bankers have admitted that after what happened in Cyprus, their depositors with accounts worth a few hundred thousand euro have started withdrawing their money. And that trend ain't stopping any time soon. A growing chorus of experts are now predicting that Slovenia will be begging for help by the end of the year, despite all the energetic attempts of the government to deny all parallels with Cyprus, and the assurances that they'll manage on their own.

The impression is now that the government has very few options, and no plan of action. And though the comparisons with Cyprus might not be too justifiable, there are serious reasons for concern about the tiny Alpine country. Its economy, once EU's champion in terms of growth, is now among the worst performers, and has been shrinking for 3 out of the 4 recent years, the 2013 forecast being for another 2% contraction. Slovenia has three main challenges before itself. First, it's still in recession. Second, the overblown public sector - the number of state employees has kept increasing, and no steps were made for optimizing the bureaucratic system. And third and most important, no reforms were made for dealing with the banking crisis - no privatization, no pension reform, nothing.

But the stats that causes the most concern is the one showing that bad loans in the balance sheets of the Slovenian banks have reached 7 billion euro (which is about 1/5 of the GDP). According to IMF the three largest banks have to be urgently recapitalized with a bail-out package worth a billion euro. Their horrible condition is a result of bad management - many of the banks are state property, and granting credits to firms with political collections is the main reason for their sinking.

But despite all this, the problems of the small West Balkan country are in no way in the same league like those of Cyprus. And if the markets somehow manage to calm down and the government finally finds the guts to take on the task of cleaning up its banking sector, doing transparent privatization and financial reform, then there'd be still a chance for Slovenia to avoid becoming patient number 6 at EU's E.R. (after Greece, Ireland, Portugal, Spain and now Cyprus).

Curiously, the most fervent (and maybe the only) defender of Cyprus at the heated negotiations on the aid package was... Luxembourg. And, once Cyprus' fate was sealed, the infinitesimal dutchy started aggressively, almost hysterically explaining to everybody how it was so very different from the Mediterranean island, and how the size of its finance industry relative to its GDP was never the most reliable indicator for the health of its banking system.

The thing is, given the German-led assault on all tax havens, Luxembourg does have a lot to be concerned about. With its status of a major hub for various multinational corporations and billionaires who value discretion and extremely low tax rates, and with a banking system whose assets exceed the GDP by 22 times (see above graph), the Great Dutchy has understandably found itself right in the focus of EU attention, now that Cyprus was dealt with in such a brutal manner. And it started preemptively explaining how its finance sector was very stable and much more diversified (which is true: only 8% of all bank assets are held by domestic banks in Luxembourg, compared to 71% in Cyprus). And the foreign minister Jean Asselborn directly accused Germany of "striving for hegemony in the Eurozone", and said that Europe's economic juggernaut has no right to choose particular business models as the "mainstream" recipe for all the rest.

The approach to Cyprus is also causing concern in Malta. The minister of finance Edward Scicluna sympathetically pointed out that his Cypriot counterpart had left the Brussels talks "with a pistol to the head". And he hastened to explain that his country does not operate with Russian capital, and though its banking sector is much larger than the one in Cyprus in relation to the GDP, it's much "healthier and more stable". There's fear that if Malta is to ever request aid from the EU or IMF, they'd be treated in the same way like Cyprus. The premise is that, if Germany is allowing itself to treat even Luxembourg as a fraudulent state even if it meets all international requirements and measures against money laundering, then what's left for a tiny country like Malta.

But apparently the sudden interest in the small countries is supposed to have its benefits as well. At least for the time being, it seems that everyone has forgotten that Italy has been unable to form a government for weeks now, that the banks in Spain continue to emit troubling signals, and that France has no friggin' idea how to cut its budget deficit and revitalize its economy. But that still doesn't mean those problems would somehow disappear. Who said the worst of the Euro crisis was behind our back?