Lessons from the East European Financial Crisis, 2008-10 (original) (raw)

The East European Financial Crisis

SSRN Electronic Journal, 2009

Materials published here have a working paper character. They can be subject to further publication. The views and opinions expressed here reflect the author(s) point of view and not necessarily those of CASE Network.

The global economic crises: Impacts on Eastern Europe

Acta Oeconomica, 2010

The global crisis of 2007–2009 can be viewed as three interdependent and mutually reinforcing crises: a financial crisis, a liquidity crisis, and a crisis in the real economy. The ten East European countries that are now EU members were hit first by the global liquidity crisis, then by dramatic declines in capital inflows and plunging demand for their exports. Different impacts among the ten are explained by such factors as their exchange rate regimes, the extent to which households found it advantageous to rely on foreign-currency loans and the appropriateness of fiscal and monetary policies prior to the crisis. Since Western Europe’s recovery and growth are likely to be slow, in the future East European countries will have to rely relatively more on internally-generated sources of productivity growth and enhanced global competitiveness.

Economic crisis in the Baltic states : Focusing on Latvia

Ekonomski anali

This paper examines the causes of the economic crisis in new EU member states in Central and Eastern Europe, focusing on the Baltic States, especially Latvia. Thanks to the Single Market of the EU, workers in this country became able to migrate to advanced EU countries, especially the UK, decreasing the unemployment rate and at the same time causing a sharp increase in wages due to a tightened labour market. Banks from Nordic countries came to operate in Latvia and competed for market shares, stirring a consumption boom. In a situation in which people can easily get loans denominated in a foreign currency the monetary policies of the central bank are weakened. The Latvian economy already showed signs of overheating in 2005. However in the spring of 2007 the government turned to restrictive policies, causing a depression at the end of 2007. The Lehman shock dealt the Latvian economy its final blow. Latvia set up the introduction of the Euro in 2013 as an exit strategy. Latvia is in a...

The Effects of the Global Financial Crisis on the Central and Eastern European Union Countries

After a period of strong expansion of economies across the world, in 2007 a crisis burst out in the real estate sector of the United States. With the collapse of Lehman Brothers in 2008 the crisis soon became global. Initially, it primarily affected the advanced economies of the United States and Western Europe, but the spillover of the crisis was unexpectedly powerful. The financial crisis has hit the various Member States of the European Union to a different degree. The global financial crisis affected the real economy in Central and Eastern European Union countries such as Czech Republic, through two main perspectives. First, the credit squeeze affected borrowing conditions for firms and households with subsequent adverse effects on domestic investment and consumption demand. Second, the downturn in the global economy, affected export demand severely. In this study the effects of the global financial crisis on the new European Union countries, how this question is handled by the European Union and which strategies are followed for crisis management will be discussed.

Economic Crisis In New Eu Member States In Central And Eastern Europe: Focusing On Baltic States

2010

After giving a general view of the economic crisis in new EU member states in Central and Eastern Europe, this paper examines the causes, focusing on Baltic States, especially Latvia. Thanks to the Single Market of the EU, workers in this country became able to migrate to advanced EU countries, especially the UK, decreasing the unemployment rate and at the same time causing a sharp increase in wages due to a tightened labor market. Banks from Nordic countries, Sweden in particular, came to operate in Latvia and competed for market shares, stirring a consumption boom. In a situation in which people can easily get loans denominated in foreign currency, monetary policies of the central bank are of no use. The Latvian economy already showed a sign of overheating in 2005. However, in the spring of 2007, the government turned to restrictive policies, causing depression at the end of 2007. In addition, the Lehman shock dealt the Latvian economy its final blow. Baltic States have shared a c...

CAuSES Of fiNANCiAl CriSiS: ThE CASE Of lATviA

In this paper, we review how Latvia developed during the boom period and discuss the key structural features of the Latvian economy. We show that a combination of monetary and fiscal expansion contributed to a greater vulnerability to external shocks. We also show that the GDP growth was largely driven by capital deepening, while productivity gains played a significantly smaller role. As a result, one of the most important explanations for the exceptionally deep recession in Latvia should be distortions in the non-traded sectors of the economy. Finally, we give a brief analysis on policy measures that have been taken to correct the distortions and possible pros and cons of an external devaluation.

The crisis in Eastern Europe: What is to be done?

2009

This policy note argues that the current global economic crisis enforces an adjustment process in the countries of Central, Eastern and Southeastern Europe (CEE and SEE) in the form of real exchange rate depreciation. Because of the weakness of financial institutions and built-up foreign currency debt such a process has inherent dangers to lead to overshooting and a possible capital flight out of these economies. In such circumstances the economies are severely constrained in putting the types of policies in place which are currently pursued in most of Western Europe, the USA and Japan, that is of backing up their banking system through recapitalization and through fiscal stimulus packages. Given the rather low levels of public debt in most of the CEE and SEE economies and the need to reinitiate the operation of the credit system, such policies have as much justification to be pursued in these economies as in the higher income countries. We hence advocate a determined approach by EU institutions and a coordinated approach by EU governments (in cooperation with IFIs) to back up a measured process of real exchange rate adjustment (in both flexible and fixed exchange rate countries) and to provide the backing necessary to pursue growth initiating policies in these economies.

The Last Shall Be the First: East European Financial Crisis

2010

Vilks for their input. I have benefi ted from comments at two presentations at the International Monetary Fund, one at the Center for Economic Policy Research in Washington, and one at the European Bank for Reconstruction and Development in London. I also thank Natalia Aivazova for valuable research assistance and Madona Devasahayam for eminent editing.