♠ Posted by Emmanuel in Credit Crisis,Europe
at 2/27/2009 09:45:00 AM
This post is pretty much self-explanatory as the events which led to it are obvious. During the Asian financial crisis, many affected countries decided to borrow in other currencies such as the US dollar and Japanese yen to take advantage of lower interest rates abroad. For one reason or another, Eastern European countries unwisely put off adoption of the euro during better times. Now that the world economy is souring, many of these countries are faced with the usual difficultly of paying off foreign loans when exports are down and their currencies have depreciated because, well, investors feel safer holding euro denominated assets (or Swiss francs to a lesser extent). Remember that line about those not learning from history being doomed to repeat it? Some people never learn. From MarketWatch:Three multinational institutions issued a joint pledge Friday to provide up to 24.5 billion euros ($31.2 billion) to support the banking sector in Eastern Europe and to fund business loans.Speaking of which, also visit the World Bank site. World Bank President Bob Zoellick reckons Eastern European banks will need $120 billion to see them through. The EBRD and IMF have more on this joint action, too.
The move by the World Bank, the European Bank for Reconstruction and Development, and the European Investment Bank comes as Eastern European countries struggle to meet massive, foreign-denominated debt obligations. The International Monetary Fund has already provided loans to Latvia, Hungary, Serbia, Ukraine and Belarus.
Formerly robust inflows of cash have dried up amid the global economic crisis, and the region's currencies have come under heavy pressure -- a situation some economists see as a potential repeat of the Asian financial crisis of the 1990s.
Investors have grown increasingly concerned in recent days about the exposure of Western European corporations, including banks, to fragile Eastern European economies. The vulnerability of Western banks, particularly those based in Austria and Sweden, was spotlighted by ratings agency Moody's Investors Service last week.
"This is a time for Europe to come together to ensure that the achievements of the last 20 years are not lost because of an economic crisis that is rapidly turning into a human crisis," said World Bank President Robert Zoellick, according to a statement from that body.
The three organizations, the largest multilateral investors and lenders in Eastern Europe, said the package is designed to support lending to the real economy through private banking groups. Support will include equity and debt finance, credit lines and political-risk insurance.
Under the plan, the European Investment Bank is to provide about 11 billion euros in lending to small and midsize businesses in the central, eastern and southern parts of Europe. Some 5.7 billion euros are available for "rapid disbursement," with an additional 2.8 billion euros set for approval by the end of April and further funds expected to follow, the bank said.
Meanwhile, the European Bank for Reconstruction and Development has committed to provide up to 6 billion euros for the financial sector in 2009 and 2010 through equity and debt finance, loans to banks and directly to small and medium-size businesses and trade finance.
The World Bank is to provide about 7.5 billion euros in support.
