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Post an EU jobThe flaws in Eastern Europe's model of growth have been exposed by the financial crisis and commodity-reliant countries like Russia must expand their industrial base to make them more resilient, the European Bank for Reconstruction and Development (EBRD) said in an annual report on Monday (2 November).
The global financial and economic crises, which have engulfed many countries within the European Bank for Reconstruction and Development's (EBRD) remit, has reinvigorated the London-based development bank, set up at the end of the Cold War to help former communist economies adjust to free markets.
In 2008, the United States - its largest shareholder - questioned the need for the EBRD given the spectacular economic growth of recipient economies such as Poland and Russia.
Now with new-found purpose, the EBRD is stepping up investment to unprecedented levels, aiming to spend up to seven billion euros to help Central and Eastern Europe face its biggest economic challenge since the fall of the Berlin Wall twenty years ago.
It is also contributing six billion euros to a 24.5 billion euro two-year package for the region led by the World Bank and the European Investment Bank.
The development bank, one of the biggest investors in a campaign to transform the region since the collapse of communism two decades ago, also said risks arising from financial integration must be better managed.
It said countries had been over-reliant on foreign banks and in-flows to drive growth in the boom years, leaving them highly vulnerable during the global credit crunch.
"The EBRD economists concede that financial integration has brought disadvantages, by encouraging credit booms, over-borrowing and a trend towards foreign currency borrowing," the bank said in its annual report.
But while this has deepened the region's recession, the EBRD said financial integration with the West remains a source of growth and should not be reversed.
"This means addressing the bias towards foreign currency lending through macroeconomic policies, regulation, and the creation of legal frameworks and market infrastructures supporting local currency finance," the EBRD said.
The EBRD has been criticised by some of its 60-odd country shareholders for failing to warn Eastern Europe, as well as Central Asia, about the dangers of overexposure to foreign borrowing before the credit crisis deepened last year. Eastern Europe has been among the hardest hit worldwide, with growth and budgets slashed and several countries forced to turn to the IMF, World Bank and European Union for emergency funds.
(EurActiv with Reuters.)
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