Published: February 27, 2009
On February 27, the largest multilateral investors and lenders in Eastern Europe – the European Bank for Reconstruction and Development, the European Investment Bank and the World Bank – have pledged to provide up to €24.5bn to support the banking sectors in the region and to fund lending to businesses hit by the global economic crisis.
This initiative is to complement national crisis responses and is set to deploy rapid, large-scale and coordinated financial assistance from the international financial institutions to support lending to the real economy through private banking groups, in particular to small and medium-sized enterprises. The financial support will include equity and debt finance, credit lines, and political risk insurance.
The response takes into account the different macroeconomic circumstances in and financial pressures on countries in Eastern Europe, acknowledging the diversity of challenges stemming from the global financial retrenchment.
EBRD president Thomas Mirow says: “The institutions are working together to find practical, efficient and timely solutions to the crisis in Eastern Europe. We are acting because we have a special responsibility for the region and because it makes economic sense. For many years the growing integration of Europe has been a source of prosperity and mutual benefit and we must not allow this process to be reversed.”
“This joint action plan will help speed up the delivery of vital finance through the banks to support the real economy of hard-hit countries in central, eastern and southern Europe, and particularly to help small businesses survive in these turbulent times,” says EIB president Philippe Maystadt.
“This is a time for Europe to come together to ensure that the achievements of the last 20 years are not lost because of an economic crisis that is rapidly turning into a human crisis,” says World Bank group president Robert B. Zoellick. “I welcome the close cooperation among the EBRD, the EIB and the World Bank group, and am committed to making this partnership work as we move forward to address the risk of a crisis of the banking sector in eastern Europe.”
This comes amid mounting international concern about the financial condition of the region’s more vulnerable states. Western banks, such as Austria’s Raiffeisen and Erste Bank and Italy’s UniCredit, have invested heavily in emerging Europe.
In February, Austria’s finance minister Josef Pröll visited Romania, Croatia, Bulgaria and Ukraine, and urged the EU to support Ukraine because of its strategic importance and its political and economic ties with the union members. If Austria intervenes to save eastern banks, the internal budget will be overburdened and Austria's economy could be severely hit.
Austrian banks are among the most heavily exposed lenders to the region with total loans to economies such as Ukraine and Hungary representing more than 60% of the country’s estimated 2008 gross domestic product.