29th Jan 2023

Better-off eastern central banks reject regional slump label

The central banks of the better-off nations of eastern Europe have issued a joint statement asking that investors and others distinguish between themselves and the weaker economies in the region.

They are worried that recent warnings from ratings agencies and headlines describing the region as the 'sub-prime of Europe' tar them all with the same brush. These blanket descriptions have irked the Czech Republic and Poland in particular, who do not want to be lumped in with the likes of Latvia and Hungary, recipients of bail-outs from the IMF and Europe.

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  • Bratislava: Slovakia is in the eurozone and so has not been hit by any sharp currency slides (Photo: European Commission)

The supervisory authorities of the Czech Republic, Bulgaria, Poland, Romania and Slovakia said general statements not taking into account local particularities risked turning into a self-fulfilling prophecy that brings down their economies.

They expressed "concerns about the publicly announced initiatives warning about the risks to the old EU member states' banks due to high exposures in central and eastern European countries."

"The published information accompanying these initiatives is often simplified and misleading and could have negative implications for banks operating in these countries.

"Such self-fulfilling speculation totally disregards fundamental economic developments in the CEE countries," the statement reads.

The banks also pleaded with investors to separate EU member state countries from those who have not joined the bloc.

"Each of the CEE member states has its own specific economic and financial situation and these countries do not constitute a homogenous region. It is thus important first to distinguish between the EU member states and the non-EU countries and also to clarify issues specific to particular countries or particular banking groups."

In early February, a pair of reports from major ratings agencies Moody's Investors Service and Standard & Poor's warned that western European banks with significant exposure via local subsidiaries in the former Communist nations could see their ratings downgraded.

Bulgaria, Croatia, Hungary, Romania and the Baltic nations faced a particularly difficult situation, according to Moody's.

A report from Danske Bank at the time also concluded: "No currency in the region will be unaffected."

Austrian banks' massive exposure to eastern Europe has resulted in Vienna calling for an EU-led €150 billion bail-out of the region - a move that was dismissed by German Chancellor Angela Merkel at a meeting of European premiers and presidents on Sunday.

A much smaller rescue package of the region of €24.5bn from the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB) and the World Bank has however been approved.

Belarus, Hungary, Latvia, Serbia and Ukraine have all received support loans from the International Monetary Fund, the EU and other sources. Romania, currently in talks with the IMF, is expected to be the next such candidate for emergency aid.

Nevertheless, some nations such as the Baltic states and Hungary are braced for economic declines of up to 10 percent, the Czech Republic, Poland and Slovakia are much better off.

Shortly after the publication of the joint statement, Hungary, which had not been invited to take part in its release, saw its currency skid to a fresh record low against the euro.

Hungary subsequently said it also supported the joint statement.

Meanwhile, investors, who largely dismissed the central banks' statement as a market calming exercise, said that, whatever the local circumstances, all countries across the region have seen large declines in factory output and exports.

All of eastern Europe has also been hit with record currency declines against the euro, with the exception of Slovakia and Slovenia, who are safe under the shelter of the EU's single currency.


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