Slovenia's imbalances have been unwinding over the past year thanks to macroeconomic adjustment and policy action, but "the magnitude of the necessary correction means that substantial risks are still present," says the Commission's report, a part of a review of the economies of 17 member states.

The report highlights risk stemming from the losses in cost competitiveness, corporate debt overhang, the increase in government debt, and weak corporate governance.

"While considerable progress has been made in repairing the banks' balance sheets, determined action with respect to the full implementation of a comprehensive banking sector strategy, including restructuring, privatisation and enhanced supervision is still required."

The Commission expects the headline general government deficit to remain above the targets due to the significant expenditures related to bank recapitalisation in 2013 and 2014, but the deficit is also projected to exceed the target in 2015 assuming fiscal policy does not change.

This was also highlighted by Olli Rehn, the commissioner for economic and monetary affairs, who said Slovenia had made good headway in bank restructuring but risked missing the deficit target in 2015.

It is due to this risk that the Commission opted for closer monitoring in the form of a special recommendation for additional deficit-reduction efforts, the only member states along with France to receive such a warning.

Slovenia will have to heed the warnings in the budgeting and reform plans that it must submit to the EU in April. If the Commission assesses the action is not robust enough, it can trigger a procedure for correction of excessive imbalances.

Slovenia has been the subject of an excessive deficit procedure since 2009. Last year the Commission deferred the objective to reduce the deficit below 3% of GDP to 2015 from 2013 and set intermediate annual objectives that it now fears will not be met by Slovenia.