Ljubljana - Boštjan Vasle, the governor of Slovenia's central bank, thinks the key challenge of the post-corona recovery will be to get the timing of the end of extraordinary monetary policy measures right.

"We have to be mindful not to withdraw [the measures] too quickly and thus jeopardise the strengthening of the recovery dynamics to a sustainable level.

"At the same time, the measures must not persist for too long since they have negative side affects as well," he told the STA in an interview.

The precise timing "depends on the course of the pandemic" and monetary policymakers remain cautious due to continued uncertainty regarding the coronavirus pandemic.

But at this point it appears that the economic recovery could be strong and firm enough in the second half of the year to then warrant a consideration about a gradual phaseout of monetary policy measure, he said.

As for fiscal policy measures, Vasle said they will be needed for a while after the phaseout of monetary policy measures starts, but he also warned that a restrained fiscal policy was required over the medium and long term.

He said the best way to achieve that was to ensure fiscal sustainability over the medium and long term while having sufficient flexibility and adaptability for short-term fiscal policy action.

This would require a better systemic solution than the current mechanisms of divergence from fiscal targets permitted by the Stability and Growth Pact, said Vasle, who expects a comprehensive debate by finance ministers about that once the pandemic fizzles out.

Commenting on Slovenia's fiscal policy reaction to the coronacrisis, Vasle said the state reacted quickly and abundantly, "which shows and will continue to show" in terms of the modest contraction of GDP relative to other EU member states and forecasts of faster recovery.

But in order to remain sustainable in the long term, Slovenia's fiscal policy may have to focus more on measures to increase productivity and added value than on measures to reduce spending.

In the long term, Slovenia's economic performance will also depend on how successfully it spends EU recovery funds.

"Whoever is most successful in deploying these funds and increasing productivity and competitiveness ... will have better foundations for development," according to Vasle.

Turning to the state of the banking system, Vasle said it was "too early for a final assessment as to how banks have survived, or will survive, this crisis."

Such an assessment can be made once the monetary policy measures are phased out and "the realisation dawns that all companies will not survive and that some banks may have to conduct their business differently than before the crisis."

He said the key thing for Slovenian banks was to adapt technologically and for the fragmented sector to consolidate given that the banking sector's returns are fairly low.

The central bank does not have a specific position on whether it is better for Slovenia to have two large banks, multiple small banks, or some other combination.

"What's important for us is that the owners are efficient, that they provide sufficient capital for operations and for survival on this market."