Slovenia promises to save its own banks, as doubts grow

She rejected comparisons with Cyprus, which had to seek an EU bailout to stop its banks, worth almost eight times the island's GDP, from going bust.

With Slovenia's bank-GDP ratio at well below the EU average of 3.5 percent, Bratusek added: "I would like to say we are not a tax haven, we are export oriented … Some countries we've been compared to have this [bank-GDP ratio] at 800 percent, so I think the difference is obvious."

For his part, Barroso reprimanded a journalist for asking if Slovenian depositors could lose money if there is a bailout on the Cyprus model.

"I'm sorry, but I will not engage in any comparisons with Cyprus … It is at the least abusive to make comparisons with Cyprus," the commission chief said.

The Brussels pep talk came after two high-profile reports which say Slovenia's banks are in more trouble than earlier thought.

The Washington-based bank lobby, the International Institute of Finance (IIF), on Monday called for the EU's bailout fund, the ESM, to set aside between €3.5 billion and €10 billion for a potential bank bailout in order to restore market confidence in Slovenian government bonds.

The Paris-based think tank, the OECD, on Tuesday noted: "The [Slovenian] authorities evaluate [bank] recapitalisation needs at up to 3 percent of GDP (€1 billion). Yet, capital needs are uncertain and could in fact be significantly higher."

The banks got into trouble because of giving loans, largely to construction firms, which are not being paid back.

In one case, the two largest state-owned banks, Nova Ljubljanska Banka and Nova Kreditna Banka Maribor, lent money to a financial holding company, Zvon Ena, worth up to 20 percent of the banks' capital.

Zvon Ena is now in bankruptcy procedures.

Bratusek plans to deal with the situation by creating a "bad bank" - the Bank Asset Management Company - in June to siphon off the bad loans and restore core banks' stability.

But with Slovenia facing a severe recession, made worse by its banks' reluctance to lend more money, and with the cost of its bonds on the up, it risks falling into a negative spiral.

Barroso and Bratusek also admitted Slovenia needs to do more to fight high-level corruption.

The previous government fell in January after investigators exposed that former leader Janez Jansa failed to declare €210,000 of private assets.

This week, state sleuths said the country's telecoms provider, Telekom Slovenije, lost €25 million due to dodgy deals in Kosovo and Macedonia.

Bratusek said the fight against economic crime is a "priority" enshrined in her coalition pact.

Barroso noted that corruption risks undermining popular support for austerity measures, aggravating economic risk.

He said: "The population asks: 'Why should I make sacrifices, when those politicians do not make sacrifices or when they know about corruption?' And here is a problem about the sustainability of the [fiscal consolidation] effort."

He added: "It's not only an ethical problem … it's also a question for the success of the policy."