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Lenders commit €25 bln to aid E.Europe banks

  Global development banks on Thursday launched a coordinated two-year plan to lend up to €25 billion ($31.7 billion) to shore up banks and businesses in crisis-hit eastern and central Europe.

The action plan by the World Bank, the European Bank for Reconstruction and Development (EBRD) and European Investment Bank (EIB) comes as European Union members prepare to discuss aid to banks at an emergency summit on Sunday.

In a communique obtained by Reuters, the lenders said they would provide quick, large-scale financing to strengthen banks and ensure domestic companies, especially small and medium enterprises, get access to capital.

In addition, the lenders will mobilize other resources for the region through their lending and guarantees, and work with Western parent banks that have promised support for their struggling subsidiaries in the region.

Massive expansion of international banks into eastern Europe made the region's banking system vulnerable to credit strains that arose from the US-led housing collapse that spread into Western Europe. The plan will officially be announced on Friday.

The lenders said their aid will be in the form of equity and debt finance, credit lines and political risk guarantees. Under the plan, the EBRD will provide up to €6 billion this year and next to the region's financial sector and will include trade finance through banks.

The EIB said it will lend €11 billion to businesses in central, eastern and southern Europe, of which €5.7 billion is ready to be disbursed, and a further €2.8 billion should be approved by the end of April.

The Washington-based World Bank said it intends to propose lending and political risk guarantees of up to €7.5 billion for banks, infrastructure projects and trade financing.

MORE COORDINATION

World Bank President Robert Zoellick has urged the EU to do more to support central and eastern Europe to ensure that the region's progress to market economies were not set back by an economic crisis.. “... as someone who was involved with the events at the end of the Cold War in 1989, it would certainly be a political and human tragedy if you saw the reuniting of Europe from 20 years ago come to a crisis now,” Zoellick said on Monday.

In a letter to Zoellick on Thursday, EU Monetary Affairs Commissioner Joaquin Almunia sought to dispel fears the bloc was not doing enough for its poorer eastern neighbors and detailed EU aid schemes to the region.

The big EU member states have adopted economic stimulus packages and national rescue plans for their banks with coordination for the eastern European newcomers, which have seen capital drained from their financial system.

The lenders said national policy responses were necessary but may not be enough to contain the crisis and maintain lending to the real economy. “A coordinated, regional approach is required because national policy packages can have effects beyond national boundaries, and because support and stimulus packages compete for a limited pool of resources,” they added.

The development banks said they were also working with the International Monetary Fund which has approved $50 billion in emergency packages for Iceland, Hungary, Latvia, Ukraine, Serbia and Belarus in recent months.

The lenders said it was important to coordinate efforts not only among themselves but also across Europe to stabilize the region and ensure adequate funding levels. (Reuters)