It can only be a matter of time before Eastern European countries reject the EU’s austerity plans. By cutting their lending to central and eastern Europe, the western banks which dominate CEE banking are causing a full-blown credit crunch.
European banks have cut back on lending to emerging markets, according to BIS data. So far non-European global banks and bond
market investors have filled the gap, and there was no drop in overall trade finance in the fourth quarter of 2011 despite the diminishing foreign exposure of European banks. However, access to funding is likely to tighten across-the-board as the euro-zone crisis deepens, according to BoA Merrill Lynch.
Western European bank deleveraging poses an especially big threat to Eastern Europe, as I warned in The Game is UP for the Commodity Super-Cycle As the Yo-yo Years Begin. After all, this is a region still struggling to recover from the last credit recession, and facing further financial turmoil from the euro-zone crisis (see Central Europe’s Special Hell).
The most vulnerable countries, in their view, are the euro zone’s nearest neighbors: the Czech Republic (66% of exports shipped to the euro area), Poland (56%), and Hungary (55%). Not surprisingly, the GDP numbers in Eastern Europe were shockingly bad in the first quarter. The Czech economy shrank 1%, its third consecutive quarterly decline, and Hungary saw GDP decline by a full 1.3 %. However, the full effect of deleveraging won’t be felt into the middle of the year, warns Nomura.
The IMF and the European Bank for Reconstruction and Development continue to present a united front on the need for austerity to tackle the debt crisis. But as Emerging Markets magazine reports, the battle over austerity and growth has moved east, as hostility to further cuts in spending and tax hikes spreads across large swathes of Europe.
How Long Before Eastern Europe Rebels Against EU Austerity?
It can only be a matter of time before Eastern European countries reject the EU’s austerity plans. By cutting their lending to central and eastern Europe, the western banks which dominate CEE banking are causing a full-blown credit crunch.
Western European bank deleveraging poses an especially big threat to Eastern Europe, as I warned in The Game is UP for the Commodity Super-Cycle As the Yo-yo Years Begin. After all, this is a region still struggling to recover from the last credit recession, and facing further financial turmoil from the euro-zone crisis (see Central Europe’s Special Hell).
The IMF and the European Bank for Reconstruction and Development continue to present a united front on the need for austerity to tackle the debt crisis. But as Emerging Markets magazine reports, the battle over austerity and growth has moved east, as hostility to further cuts in spending and tax hikes spreads across large swathes of Europe.