Slovenia and the banks
I bet you've never heard of Slovenia. It's at the north end of the Balkans, squeezed between Austria, Italy and Croatia on the Adriatic coast. It's small, peaceful, and prosperous compared to the rest of the Balkans. It is also stunningly beautiful, in a mountains-and-lakes sort of way. It is in many ways rather like Austria. But at the moment, Slovenia is famous not for its lovely scenery, or its important history, or its rich culture. No, it is famous for its banks. And not in a good way. Slovenia's banking crisis is a long-running sore. Slovenia's story is an all too familiar one. When it joined the EU in 2004, it entered the Exchange Rate Mechanism (ERM II) as a precursor to joining the Euro. EU membership requires free movement of capital across borders, and under ERM II its exchange rate was soft-pegged to the Euro. So it effectively lost control of monetary policy. The result, of course, was a mammoth inflow of foreign funds, a huge credit bubble, an ...