It has 410m people and its combined gross domestic product grew 7.5 per cent last year to $2,956bn – 90 per cent the size of China’s, at official exchange rates. The 29-country region where the European Bank for Reconstruction and Developmentoperates garners less attention than the Bric countries (though it includes Russia). Yet with growth averaging 6 per cent annually this decade, central Europe and the former USSR have contributed significantly to global economic expansion. All the more worrisome, then, that the EBRD warned this week that growth for the region would halve from 6.3 per cent this year to 3 per cent next. Two weeks earlier it was forecasting 3.5 per cent for next year.

Another hole is knocked in the theory of decoupling. Far from being a safe haven, the diverse central European and former Soviet economies are being laid low by falling oil and commodity prices or exports to recession-hit “old” Europe. But many sucked in cheap foreign funding during the boom years, leaving them with big external imbalances and high refinancing costs. Since September, flows of bonds and syndicated loans to the region have dried up; foreign parent bank financing of subsidiaries and foreign direct investment are slowing too.

Meanwhile, Dresdner Kleinwort has found that, by various measures, central Europe’s small, open economies are the most vulnerable emerging markets to financial or macroeconomic shocks from the slowdown. Larger or more closed economies in Latin America and Asia are least exposed. The International Monetary Fund has already come to the aid of Hungary, Ukraine, Belarus and Latvia. And, like the IMF, another international institution may get a new lease of life from the crisis. Shareholders who had questioned the future need for the EBRD, set up in 1991 to help finance the region’s post-communist rebuilding, surely now have their answer.

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