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Eastern Europe Must Prepare for 2014 Recovery, EBRD Says

Eastern European governments must adopt policies to strengthen their economies to benefit from a global recovery in 2014, said Suma Chakrabarti, president of the European Bank for Reconstruction and Development.

The policies advocated by the EBRD include improving the business environment, state-asset sales, strengthening legal systems and making policies predictable so that investments remain viable, Chakrabarti told reporters in London today.

With every eastern European country cutting its fiscal deficit, their economic growth is also being dragged down by the recession in the euro region, their main export market, he said. The European Union’s eastern members are all planning to post shortfalls within the 27-nation bloc’s limit of 3 percent of output this year or next.

“What they need to do more about is the growth side, structural reform,” Chakrabarti said. While that’s hard for nations to carry out while also tackling the deficit, “it’s very important that they do, because when the global recovery comes they won’t be ready to take advantage of it unless they have done structural reform as well.”

The 29 east European and central Asian countries where the EBRD invests will grow 2.7 percent in 2012, down from 5 percent last year, the London-based bank forecast July 25. It is due to release revised forecasts on Nov. 7.

Slowing Growth

“Growth and credit inflows are all slowing down in our eastern European region and unemployment has been rising -- I’m particularly worried about youth unemployment in some places,” Chakrabarti said, adding that economic growth should return to the area in 2014.

Credit in eastern Europe, where western lenders such as UniCredit SpA and Erste Group Bank AG own three-quarters of the banking industry, is suffering as stricter regulatory requirements reduce funding to the region. Bank lending from February to April adjusted for inflation only expanded in Poland and Slovakia, according to the EBRD.

The help shield eastern Europe’s lenders from sudden withdrawals by western parent banks, non-euro EU countries should be included in a banking union that’s being set up to preempt future crises, Chakrabarti said.

“We’d very much like to see the banking union covering non-euro-zone countries,” he said. “It would be a bit odd if they weren’t covered.”

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