A specter is haunting Slovenia - the specter of the European Stability Mechanism.

Prime Minister Janez Jansa has warned his people straight out that if the reforms and austerity measures proposed by his conservative government aren't implemented, a "national bankruptcy" would be unavoidable - as would a bailout.

"Any Slovenian government you can imagine will be more social than what the troika will impose upon us," were the words echoing out of Ljubljana earlier this month, when the government introduced its austerity budgets for the next two years.

At the same time, Jansa's finance minister, Janez Sustersic, has been campaigning for a reform of the Slovenian banking sector. And the central bank head Marko Kranjec has uttered his "hope" that Slovenia can avoid a bailout, despite how "slow the speed of reforms has been, far too slow."

The lure of cheap money

Things looked very promising for Slovenia when it joined the EU together with nine other countries as part of the eastern enlargement in 2004. There was no surprise when the industrial nation - known for its robust economy and praised by the EU as a "model country" - joined the eurozone monetary union in 2007.

Jansa was full of optimism after being elected in February

As it turns out, this was all an illusion. Slovenia was indeed the most developed republic of the former Yugoslavia, and after entering the EU it did experience further economic expansion. However, the basis for this expansion was the cheap money that the burgeoning eurozone member was able to gather on international markets, according to Hermine Vidovic of the Vienna Institute for International Economic Studies.

"The Slovenians lived heavily on credit in the years after EU accession, amassing enormous debts abroad in a bid to finance a construction boom that eventually had to be cut off rather abruptly."

And, as a result of the cheap loans they had access to, several Slovenian companies pursued huge expansion plans that otherwise would have been unthinkable: "There were very risky moves made, and many of the companies failed to profit the way they had hoped. Now they are deep in debt."

Depression sets in

The consequences of this climate are nothing short of disastrous. Slovenia's national debt has doubled in the past four years and is now around 50 percent of GDP. Simultaneously, the economy is currently sliding further into recession; the latest data suggests a two percent decrease this year and forecasts 1.5 percent decline in 2013.

Unemployment is also perpetually rising. Currently, around 8.6 percent of Slovenians who could work are out of a job. This figure is below the EU average - roughly 10 percent - but for Slovenia it remains alarming; unemployment has almost doubled since the start of the global recession in 2008.

For the first time since Slovenia's declaration of independence in 1991, the people are faced with the realization that life may not be as bright as before. Until now, Slovenians have only really heard positive economic news, and the current situation is eating away at the country's confidence, says Denis Romac, a political analyst and journalist in Zagreb.

Slovenians are facing hard times ahead, say financial experts

A depression is spreading through the population, says Romac: "For years the Slovenians believed they were the best [among the former Yugoslav republics], the most successful and a model for others." Only now are they beginning to realize that "they were very wrong," Romac said in an interview with DW.

Economic analyst Hermine Vidovic concurs: "The Slovenian people lived beyond their means for a long time, bolstered by the ease of cheap loans. An era of sobriety is beckoning; the boom is long over, and now Slovenians are going to have to get used to very different circumstances."

Against the backdrop of anti-austerity street protests and bleak economic prognoses, many qualified young people are already leaving the country. "We're talking about hundreds of people that are leaving every month, many of them headed for Canada or Australia. Over the course of a year, in a country like Slovenia with its 2.5 million inhabitants, this is a serious problem," concludes Romac.