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The eurozone crisis is buffeting countries that have suffered three years of recession or slow growth and financial retrenchment. In most CEE countries new bank credit has shrunk to a trickle. The burden of low foreign exchange rates weighs heavily on borrowers trying to service debt in depreciating local currencies, for example in Hungary, Poland and Romania.
But things could also get worse. Three years ago the EU could invest time and money in CEE – working closely with the International Monetary Fund on rescue loans for seven CEE states and encouraging western banks to stay in the region. Now, only Ukraine has a fully-fledged IMF programme in place. Romania and Serbia have precautionary accords and Hungary last week announced that it was also seeking one. But, with the EU fighting much bigger fires in the eurozone, there is little energy left for the east.
Erik Berglof, chief economist at the European Bank for Reconstruction and Development, wants a new version of the 2009 “Vienna initiative”, which promoted regional banking coordination. He says although the EU said the interests of all countries should be taken into account in implementing new bloc-wide banking rules, western national regulators are, in practice, tempted to put their own countries first.
Differences between countries are critical. West European banks see the central European heartland of Poland, the Czech Republic and Slovakia as sound, core territories.
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