Europe will suffer no more Iceland-style crises as safety nets are in place for countries which may run into trouble similar to the Atlantic island’s, ECB Governing Council member Ewald Nowotny told Reuters.
“In Europe there will be no second Iceland,” Nowotny said in an interview. „This was a very special case. It was a country that became kind of a hedge fund.” While there are emerging economies in Europe with imbalances such as the big current account deficits haunting the Baltic states and in the Balkans, or the foreign debt towering over Hungary, Nowotny said there is protection in place.
“In Europe there are enough safety nets available,” he said. „There are safety nets for the Baltic states, there was a problem in Hungary that was solved very quickly and very efficiently. “There might be some countries where there might be some problems but in all cases there is a very strong mutual interest not to let them down,” he said.
Iceland’s top three banks, Kaupthing, Landsbanki and Glitnir were taken over by the state in October after they collapsed under the weight of tens of billions of dollars of foreign debts, triggering what is set to be a deep recession for the island economy. As Austria - its banks in particular - is very exposed to the emerging countries of Europe, the Austrian central bank which Nowotny heads is closely monitoring developments in the former Communist bloc.
Nowotny said he expected current account deficits to fall gradually next year as economic growth and consumption slowed down in the European Union’s new eastern member states. “This is not a homogenous region,” he said. “There are countries like Slovakia or the Czech Republic, which are in very good shape and we have others which have problems in terms of current account deficits. “To a certain extent this will be self-correcting because we will have lower growth rates which will mean a decline in consumption and that will lead to a lower current account deficit,” he said.
However, he also urged those countries to draw on available European Union funds, some of which were idling away without being used. Both the EU and the countries concerned should do more to activate those funds, he said. “There are huge EU funds which are allocated to those countries and which up to now have not been fully activated,” he said. This was partly because of deficits in those countries - Bulgaria was stripped of EU funds last month because of graft problems. But the EU could also do more to speed up the distribution of the funds, he added. “It’s not a matter of providing the money but of activating the money,” he said. “In some situation there needs to be a wake-up call and this wake-up call is here now.” (Reuters)