Monday, February 23, 2009

Eastern Europe in Trouble

The crisis is clearly hitting Eastern Europe hard. See here and here. Countries that had been growing fast, based on cheap foreign borrowing, are now hurting as the capital flow is reversing. Moreover, these countries must now repay their debts denominated in currencies that have appreciated relative to those in Eastern Europe. Fragile banking systems are also threatened.

This is the background to the call yesterday:
European leaders called for doubling the International Monetary Fund's war chest to $500 billion for bailing out financially stricken nations, amid new signs that Europe's former Communist east is sliding into a full-blown crisis.
This is all in the wake of already approved programs for Hungary, Ukraine, Iceland, Belarus, and Latvia worth more than $39 billion, and a request from Serbia will be considered soon.


Vlad_Krein said...

What definitely strikes me these times it's the willingness of American economists to mention fragile banking systems! :) I start thinking on the Citi bailout immediately :)

An interesting also point is the Austrian, Greek and Swedish exposure to some of the EastEurope countries thorough ownership and wholesala banking. It could be a channel for euro contagion.

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