Who is to blame for the credit crunch: foreign ownership or foreign funding?
Erik Feyen, Raquel Letelier, Inessa Love, Samuel Munzele Maimbo, Roberto Rocha 15 March 2014
Eastern Europe was hit especially hard by the credit crunch during the global financial crisis. This column presents new evidence suggesting that reliance on foreign funding was more important than foreign bank ownership per se in exacerbating the post-crisis credit contraction. These findings point to the need to put more emphasis on the discussion of bank business models, regulatory standards, and supervisory arrangements.
From boom to crunch
Although most developing countries around the world experienced a severe contraction of bank credit during the recent global financial crisis, the Eastern Europe and Central Asia (ECA) region was disproportionately hit after it had experienced very high credit growth (Figure 1).
Figure 1. Banking system trends in ECA
Financial markets Global crisis International finance
Credit crunch, global financial crisis, banking, Eastern Europe, cross-border banking, credit growth, Central Asia
Eastern European migrants are net contributors – not costs – in the West
Joakim Ruist 17 September 2013
This year the free movement of eastern European workers within the EU has been questioned. Fearing excessive use of their own welfare systems, governments have argued for continued access restrictions. This column presents research showing that eastern European migrants have been net contributors to public finances of the richer EU15 nations that received them.
In 2004 when the EU expanded from 15 to 25 member countries, all EU15 countries except Sweden made use of the possibility to temporarily restrict the new EU citizens’ access to their labour markets and welfare systems for up to seven years. The UK and Ireland only imposed minor restrictions. When Romania and Bulgaria joined in 2007, all except Sweden and Finland imposed similar restrictions for citizens of these two countries.
EU, Eastern Europe, public finance
Growing together: Croatia and Latvia
Thorvaldur Gylfason, Eduard Hochreiter 08 December 2010
Croatia and Latvia both gained independence in the early 1990s. This column tracks their progress since. It shows that the two are growing but at different rates and with varying cycles. It argues that investment in human capital, good governance, and institutional reform have been vital for development and while Latvia is catching up, Croatia remains the more efficient and wealthier of the two.
Croatia and Latvia regained independence in the early 1990s. While Latvia could promptly start adjusting its policies to prepare for its integration into the EU (and NATO), Croatia suffered a bloody war of independence that, including its political aftermath, set its EU ambitions back by about a decade. Latvia used its time well and pursued radical reform policies that led to EU accession in 2004. After nearly five years of war, Croatia opted for more cautious, gradual reforms, and opening up.
Development Europe's nations and regions
Eastern Europe, Latvia, Croatia
Regional development policies: Place-based or people-centred?
Indermit Gill 09 October 2010
Economic development is not evenly spread, and in some places it is still yet to arrive. This column looks at suggestions from the World Bank’s World Development Report to combat this inequality. It argues that economic growth will be unbalanced, and to try to spread it out – too much, too far, or too soon – is to discourage it. Instead, policymakers should focus on economic integration.
Economic policy and economic geography are very much live issues, even if Paul Krugman (2010) suggested that the heyday of the New Economic Geography is past (Combes et al. 2008, Brülhart 2009).
2009 saw three major reports on the nexus:
Development Europe's nations and regions
development, income inequality, Ireland, Eastern Europe
Foreign-currency loans in Eastern Europe: Borrower pull or bank push?
Martin Brown, Karolin Kirschenmann, Steven Ongena 13 September 2010
Foreign-currency loans in Eastern Europe are seen as a major threat to financial stability. Why then are they so widespread? This column presents evidence from over 100,000 loans made by a Bulgarian bank between 2003 and 2007. It finds that one-third of foreign-currency loans were actually requested in local currency by the firm, suggesting that banks are pushing them.
A large share of firms and households in Eastern Europe borrow in a foreign currency, i.e. the euro or Swiss franc, rather than in their domestic currency (see Figure 1). Unhedged foreign currency (FX) borrowing by the private sector is seen as a major threat to financial stability in the region and has led to a strong response from national authorities.
Europe's nations and regions International finance
Eastern Europe, international finance, Europe’s nations and regions, foreign-currency loans
The crisis in Eastern Europe: What is to be done?
Vladimir Gligorov, Michael A. Landesmann 16 March 2009
Eastern European countries have high external imbalances that constrain their policy responses to the crisis. This column says the EU should provide support through both fiscal and financial measures. Otherwise, it risks a much deeper and prolonged economic crisis in both new and potential member states that will have negative effects on the whole of Europe.
The issue of crisis in the East is really about the ability of the EU to take on obligations in the areas covered by the common market principles irrespective of whether these arise in one or the other region within the EU and even in countries outside of the EU. The current crisis within the financial sector that is spilling over into the real sector is difficult to tackle because of the duality between common market policies and national structure of governance.
Europe's nations and regions Global crisis
Eastern Europe, EU policy
Crisis in Eastern Europe: Manageable – but needs to be managed
Erik Berglöf 28 February 2009
Eastern European nations are on the edge. In this column, the Chief Economist of the European Bank for Reconstruction and Development argues that widespread banking crises are possible, if Western governments fail to coordinate. The situation is manageable, but it needs to be managed.
The leaders of Europe will meet this weekend to respond to the rapid deterioration of the economic situation in Emerging Europe. The situation varies a great deal; some countries have been more prudent in their policies than others. But all are joined, more or less strongly, through the deeply integrated European banking system.
global crisis debate, Eastern Europe, exchange rate crisis, bank crisis