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"We believe that after last year's turnaround, when some Slovenian banks were recapitalised, we are at a crossroads again and that the sense of security shown by the latest data could be deceptive to a point that we get entangled in a vicious circle again that will be tackled solely at the taxpayers' cost again."

The governor made the statement at a press conference on Thursday in Ljubljana as he presented a document adopted by the Governing Board of Banka Slovenije to assess the situation and offer possible solutions.

Jazbec called for clear, consistent and coherent polices, openness to equity investment and for tackling institutional and regulatory obstacles to investment.

"We need a new investment cycle, coupled with the implementation of measures to revive the economy which we believe can be started to be implemented in a relatively short period of time but which bring long-term solutions."

Jazbec highlighted the need to increase effectiveness of legislation and the justice system, corporate deleveraging and restructuring, improve banks' balance sheets and boost fiscal sustainability.

The governor conceded that some of the measures are being implemented, but he underscored the need for policies and measures to be comprehensive and complementary and to be implemented fast.

Sustainable growth must be based on new investment that will be financed through equity rather than debt capital.

"Otherwise the fledgeling recovery detected in Slovenia at the moment will end in a blind alley," the governor warned.

Jazbec highlighted that new investments can only be obtained from abroad. "The fact is that Slovenia lacks other capital bar taxpayer money," he said in calling for a strategy of attracting foreign investment.

The other option is not to carry out privatisation, but then this must be stated clearly and the policy-makers must state how they intend to fuel economic growth.

Moreover, the central bank urges policy makers to clearly define the main goal of fiscal policy which must be within the available means.

"Measures on the revenue side are not desirable but are probably the only measures possible," said Jazbec.

Among the possibilities are a real estate tax, improved tax collections and tweaks to the reduced value added tax rate which would see more products and services taxed at the standard rate.

On the expenditure side, the priorities should be healthcare and pension reform, labour market reform, restructuring of local governments and rationalisation in education as well as greater efficiency in social transfers.

A worrying trend in the banking sector, said Jazbec, is the continuing high rate of bad loans, which continues to grow. In order to deal with the problems, the banking system must be restructured, state shares in banks sold and oversight bolstered, said Jazbec.

Banka Slovenije expects the new government to respond to its document. "We hope the government will heed the recommendations, as our take on things is not rosy, although solutions exist, but it must be the government which takes measures in the right direction."