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East Europe crisis “manageable,” EBRD’s Berglof says

  Eastern Europe’s financial crisis is “manageable” so long as western banks continue lending to their units in the region, said European Bank for Reconstruction and Development (EBRD) Chief Economist Erik Berglof.

Reports that banks with East European operations are under threat are greatly exaggerated as exposure in the region is in fact more than 10 times smaller, Erik Berglof, economist with the European Bank for Reconstruction and Development, was quoted by Reuters as saying.

Berglof’s statement, which was backed by the Institute of International Finance, came only a day after central banks in Central and Eastern Europe issued a joint declaration, saying speculation about the stability of the region was misleading.

Berglof said in a statement to the Financial Times that the media cited wrong data published by the Bank for International Settlements alleging that western European institutions had about €1.7 trillion in East European exposure. The figure refers not to lenders’ short-term liabilities, but to the assets of their local branches, Berglof said.

In an interview with Bloomberg, Berglof said Eastern Europe’s financial crisis is “manageable” so long as Western banks continue lending to their units in the region.

Emerging European nations are struggling to refinance short-term debt as the global crisis that has left banks with more than $2 trillion in losses and writedowns cuts off credit and investment and plunges most of the region into a recession.

“The key is continued support from banks in western Europe to their subsidiaries in the East,” Berglof said in an interview yesterday in London. “As long as those flows continue, that’s a very large part of the solution to the problem. The situation is manageable but we must make sure that it is being managed.”

Eastern Europe’s refinancing need is about $200 billion, based on short-term external debt owed by the region’s banks to foreign creditors, Berglof said. Excluding Russia and Kazakhstan, East European banks’ short-term debts amount to only €130 billion, of which more than half is owed to parent companies.

Speaking to Bloomberg, Berglof downplayed reports that countries such as Bulgaria and the Baltic States will abandon their currency board mechanisms. (BBJ,Bg, Sofia Echo)