Published: March 13, 2009
Eastern Europe is facing a severe recession, but not a collapse, according to Thomas Mirow, president of the EBRD.
Speaking at the London School of Economics on March 10, Mirow said: “What we are now facing in some countries in Eastern Europe is a severe recession but not a collapse. The economic performance in most countries of Eastern Europe remains no weaker, and often stronger, than that in Western Europe.”
The EBRD is lending record amounts of money to the CEE region to try and avert the financial crisis that has engulfed it since the fourth quarter of 2008, when lending by western banks and portfolio investors to the CEE region dried up. The EBRD has committed €7bn in lending, 20% more than last year. Half of the €1bn in extra spending is intended for CEE.
At present, between 50-80% of the banks in Eastern Europe are owned by western banking groups. Mirow explained: “For many years this has meant a high inflow of capital, the establishment of a modern banking sector and the availability of loans to the real economy as well as consumers.” Mirow insisted that maintaining the flow of credit and not retrenching behind national borders is crucial for all of Europe: “Shutting the door to our neighbours now will also mean shutting the door to our own future.”
Most western banks have so far remained committed to the region, particularly Austrian banks. Raiffeisen has recently supported its Ukraine subsidiary with a US$160mn loan. Erste Bank and Bank Austria, which is owned by Italy’s UniCredit Group, also support their eastern units.
However, some western banks say the EU needs to do a lot more to support the region. Herbert Stepic, chairman of Raiffeisen International, says: “What is highly requested is that local governments think about similar packages for financial institutions as have been put in place in western markets, primarily with regard to liquidity.”
Politicians in the CEE region also say the EU needs to do more to protect the CEE region. Speaking at a recent Brussels summit, Ferenc Gyuarcsany, the Hungarian prime minister, warned of a new ‘iron curtain’ being erected between the countries of new Europe and old Europe.