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November 8, 2012 6:28 pm
Leading development banks have launched a €30bn “action plan” to revive growth in east European countries hit hard by the eurozone crisis.
Some 17 countries in “emerging” Europe from the Baltics to the Balkans will be eligible for the lending pledged over two years by the World Bank, European Investment Bank and European Bank for Reconstruction and Development.
The funds will go into private and public-sector projects including infrastructure, corporate investment and the financial sector, aimed at “underpinning” growth.
While growth across eastern Europe as a whole continues to outstrip that of the European Union, it has slowed sharply owing to the debt problems in the eurozone – the region’s main source of capital and the most important market for its exports. Several countries, including Hungary and the Czech Republic, have gone into recession this year.
The €30bn package also comes amid concerns in several central and east European countries that they will face big cuts in vital EU cohesion funds as a result of pressure, including from the UK, to restrain growth in the EU budget.
The programme marks a considerable diplomatic success for Sir Suma Chakrabarti, new British president of the EBRD, who has lobbied for co-ordinated action to support south-east Europe, in particular, since taking up the job in the summer.
But what just weeks ago was envisaged as an €8bn plan to support Balkan states hardest-hit by the eurozone slowdown and problems in Greek banks has mushroomed into a programme with far greater financial and geographical scope.
It is understood that the EIB, the EU’s development bank, insisted the plan be broadened to include central European countries, but in return pledged a significant increase in the financial firepower.
“While the world’s eyes are fixed on the problems in western Europe, the legitimate requirements of emerging Europe, which has staked so much in the name of economic and financial integration, must not be neglected,” said Sir Suma. “The EU’s new as well as its aspiring member states, especially in southern and eastern Europe, are once again suffering from problems that are largely not of their making.”
The EIB, which this summer secured a €10bn capital increase under new president Werner Hoyer, will commit a minimum of €20bn. The World Bank will provide €6.5bn, with €4bn from the EBRD.
Erik Berglof, the EBRD’s chief economist, said the lenders did not want to give the impression of a looming “collapse”, but the plan was aimed at “getting a recovery going”, particularly in southeast Europe.
“It is not a major crisis issue, it is not like the financial systems are about to implode,” Mr Berglof said. “But there is little really positive happening in these [southeast European] countries either. And these are the countries that have the most to do in terms of convergence, and where the biggest benefits of that are still left to harvest.”
The plan has been developed in the context of the Vienna Initiative, revived early this year to guard against uncontrolled deleveraging by west European banks that dominate banking further east, but have faced stiff regulatory pressure to rebuild parent-company balance sheets.
The €30bn now pledged surpasses the €24.5bn initially committed by international lenders to the original Vienna Initiative in 2009. That played a central role in preventing west European banks from pulling out of eastern Europe at the height of the global financial crisis.
But lenders say the new programme is significantly different. It will not provide liquidity to a struggling financial sector, but is aimed at boosting growth by supporting investment in economic restructuring and diversification as well as enhancing competitiveness.
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