Tuesday

19th Mar 2024

EU development bank seeks extra money to help eastern Europe

The European Bank for Reconstruction and Development is seeking an extra €10 billion from its member governments in order to increase lending to central and eastern Europe.

The bank - founded in 1990 to assist the formerly Communist countries move towards a market economy - is seeking the 50 percent funding increase to compensate for the sharp decline in private capital flowing to the region.

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  • Riga is one of several eastern capitals that has sought bail-out money (Photo: thesetides.com)

In a letter to shareholder governments, EBRD president Thomas Mirow says the region's economies have begun to stabilise but that they have "not done so uniformly and it would be premature to say that a general turnaround has begun."

"The crisis will have lasting repercussions," he adds, summoning up a spirit of solidarity as the world celebrates the 20th Anniversary of the fall of the Berlin Wall, reports the Financial Times.

Discussions on increasing capital at the bank from its current level of €20 billion were first floated earlier this year as it became clear countries in central and eastern Europe were struggling with the crisis.

The extra capital from governments could be used to leverage as much as a further €60 billion from private investors argues Mr Mirow, allowing the bank to step up lending to businesses struggling with funding shortages.

Tough terms

The bank – made up of over 60 member governments – has also contributed to several government rescue packages led by the International Monetary Fund since the crisis began last year.

The EU member states of Hungary, Latvia and Romania have all availed of IMF bail-out money, despite both internal and external criticism over the lending terms.

A recent report by the Center for Economic and Policy Research – a US-based think tank – says IMF lending terms have exacerbated a number of the problems in Latvia and Hungary and also non-EU Ukraine.

"Despite its claims to the contrary, the Fund continues to push pro-cyclical policies on countries badly bruised by the global recession," CEPR Co-Director Mark Weisbrot said.

"In central and eastern Europe, it looks increasingly like a big chunk of the IMF's new money will be a transfer from taxpayers to bail out western European banks who made imprudent loans in the east," he added.

NGOs and civil society groups have long railed against the strict lending conditions of the IMF, under which money frequently comes on condition of reduced government spending.

They point out that the EU is one of the main contributors to the IMF and could therefore do more to influence lending terms so that salaries and social security payments are less affected.

The IMF is due to hold its annual meeting next week.

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