World Bank Urges Eastern Europe HelpBy
The World Bank called for intervention in central and eastern Europe on Wednesday (18 February) as the region struggles to deal with the financial crisis and economic downturn.
World Bank president Robert Zoellick said the bank was attempting to help the region along with the International Monetary Fund but needed more backing from Brussels, he admitted in an interview with the Financial Times on Wednesday.
"It's got to have support from the European governments," he said. "It's 20 years after Europe was united in 1989. What a tragedy if you allow Europe to split again."
Mr Zoellick hopes to announce a €20 billion ($25bn) trade finance plan before the G20 summit in London on 2 April.
Speaking at meeting on budget deficits on Wednesday, economy commissioner Joaquin Almunia appeared to pour cold water on a co-ordinated Brussels action for central and eastern Europe.
Listing countries such as EU member Romania, candidate country Croatia, and Ukraine, Mr Almunia said their different relationships with the EU executive meant that a single initiative for the region was not feasible.
"We think a lot of authorities should be involved in the coordination of the situation… but from our point of view, what we can not do is to use the same instruments to help these countries," he said.
However Lithuanian Prime Minister Andrius Kubilius echoed recent Austrian calls for an EU support plan for the region, saying that the root cause of the region's troubles was the banking crisis in the west.
"It would be good to see a more co-ordinated approach from the EU authorities," Mr Kubilius said, also speaking to the Financial Times. "We are all suffering in a similar way from the credit crunch and the recession."
He also warned of the possibility of a collapse in Ukraine's or Russia's economy and said such an event would have dire consequences for eastern Europe.
European interconnectivity has been highlighted in recent weeks. While central and eastern economies have been harmed by the economic slowdown that resulted from the financial crisis in the west, several western European states now fear contagion in the other direction.
Austria in particular has been calling for a support package for eastern countries, fearing an economic collapse in the region could devastate the Alpine country's banking sector. Vienna's financial institutions are particularly exposed to the region, being owed €220 billion - equivalent to around three quarters of the country's GDP.
On Tuesday, Moody's, the credit rating agency, caused panic in global financial markets after it reported that some west European banks with east European subsidiaries risked ratings downgrades because of the growing vulnerability of eastern Europe's banking system.
Following the news, the polish zloty approached all-time lows against the euro and the Hungarian forint set a new record low.
Austria is not alone in its concern. On Wednesday, Hungarian Prime Minister Ference Gyurcsany called for a €100 billion rescue plan from the EU for troubled banks in central and eastern Europe and plans to raise the idea at an informal meeting of European leaders on 1 March.
Central and eastern European leaders are calling for a meeting beforehand with commission President Jose Manuel Barroso to discuss the region's troubles, according to the Brussels-based European Voice.