Bubbling under the surface: The role of western public finance in the crisis hitting central and eastern Europe
Publisher: CEE Bankwatch Network
Volume: 32 pages, pdf
Description:
The liberalisation of financial markets and the entry of foreign banks have played a central role in the extension of the current crisis to central and eastern European (CEE) economies. They contributed directly to the increased reliance on cross-border borrowing, foreign currency lending, a boom in lending to households for consumption and mortgages, and related real estate booms in many economies. The role played by foreign banks in helping create financial and economic vulnerabilities in the region is very clear and compelling. Institutions that are part of the orthodox economic establishment – including the International Monetary Fund, the Bank for International Setttlements and the European Central Bank – have acknowledged various aspects of that role. Indeed, The Economist (November 27) has noted that it was foreign banks’ “risky lending that inflated the property bubbles, now popped, and also financed huge current-account deficits in such places as Latvia and Bulgaria.”